Mumbai/New Delhi: The National Aviation Co. of India Ltd, or Nacil, the entity into which state-run carriers Air India and Indian Airlines were merged, has sought a Rs1,000 crore financial package from the government to deal with integration costs. The package could come either as a soft loan or cash assistance to Nacil, which has posted a loss of at least Rs700 crore in the last fiscal year.
“We have written to the government for financial assistance to meet integration cost. The government is expected to reply to us shortly,” said a senior Nacil executive, who didn’t want to be named.
The request “is unprecedented”, said a senior civil aviation ministry official familiar with the process, but who did not wished to be identified.
“They have asked for support at such scale for the first time. We are considering the proposal.”
The civil aviation ministry is looking at the request because Nacil is in the process of a huge capital expansion programme, valued at about Rs42,000 crore. Nacil is buying 111 aircraft from Boeing Co. and Airbus SAS.
Nacil will face much stiffer competition next year as more private carriers are set to fly more overseas routes from India.
None of the airlines in India is actually making profits. The Centre for Asia Pacific Aviation forecasts combined annual losses of $500 million (Rs1,979 crore) for the Indian airline industry in 2007-08
Meanwhile, Nacil, now into its third month of integration, has faced significant opposition from labour unions and associations at Indian and some unions at Air India, all of whom claim that the merger may not lead to a seamless integration of the 30,000-strong workforce.
Indeed, the Air India Cabin Crew Association filed a petition in the Bombay high court challenging the merger. The association claims to the “sole recognized trade union” in Air India Ltd, and has 1,800 members. The petition is expected to come up for hearing in the first week of December.
Civil aviation minister Praful Patel told Parliament last week that the airline merger will result in an estimated “net benefit of Rs600 crore during the first three years of the merger” for the state-run airline.
Over the weekend, it emerged that Air India, which primarily operates on international routes, has reported a net loss of Rs447.9 crore in the last fiscal year. Air India had reported a net profit of Rs16.3 crore in 2005-06 on revenues of Rs9,251 crore.
Losses at Indian are estimated at around Rs250 crore compared with a profit of about Rs48 crore in 2005-06 on a revenue of Rs5,770 crore. Indian’s losses were led by its loss-making subsidiary Alliance Air, which posted a loss of about Rs300 crore.
“We were expecting this loss as the fuel prices were skyrocketing. For Air India, fuel costs accounted for 35% of the total operating cost that rose by Rs386 crore to Rs3,530 crore, apart from low load factors owing to intense competition. To add, Air India had an outgo of Rs425 crore on account of payment of wage arrears of the staff that had been pending since long,” said S. Venkat, executive director, finance, of Nacil.
“This is manageable loss as we have a positive Ebitdar (earnings before interest, tax, depreciation, amortization and rent) of about Rs800 crore. Moreover, we have a positive working capital about Rs2,500 crore,” Venkat added.
The Economic Times first reported the losses on Saturday.