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Air India: GoM zeroes in on turnaround option

Air India: GoM zeroes in on turnaround option
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First Published: Sat, Oct 29 2011. 12 13 AM IST

Updated: Sat, Oct 29 2011. 12 13 AM IST
New Delhi: A group of ministers (GoM) is considering a turnaround plan for Air India Ltd that includes infusion of fresh funds, recasting its debt and freezing the payment of employee allowances till the cash-strapped national carrier turns profitable.
The plan, which was discussed by the GOM at a meeting on Friday, will be dependent on the central bank’s approval on whether lenders can restructure the airline’s debt, said two government officials.
The GoM selected one of several options presented to it by a group of finance ministry officials to turn around Air India.
Under the plan, the government needs to infuse more than Rs 6,000 crore as equity upfront.
About Rs 20,000 crore in debt will need to be recast to help the airline.
Also, it envisages selling and leasing back of the first 14 of the 27 Dreamliner 787 aircraft from Boeing Co. meant to join its fleet by 2014 to keep them off the airline’s balance sheet, said one of the two officials.
The group of ministers led by finance minister Pranab Mukherjee and including home minister P. Chidambaram, petroleum minister S. Jaipal Reddy, Planning Commission deputy chairman Montek Singh Ahluwalia, aviation minister Vayalar Ravi and aviation secretary Nasim Zaidi met in the capital on Friday to discuss how to keep Air India afloat.
The GoM has also sought the Reserve Bank of India (RBI) view on whether the debt restructuring will help the carrier cut its debt, said the second government official. Both the officials declined to be named.
The carrier has a short-term debt of Rs 27,000 crore. In addition it has borrowed Rs 42,000 crore to purchase aircraft.
“RBI has to be be comfortable that the exposure the banks are going to take is justified. It has to be convinced although the banks are not putting any equity,” said the second government official, referring to Kingfisher Airlines Ltd’s debt recast of Rs 750 crore earlier this year. “Here the amount is Rs 20,000 crore.”
The restructuring would have to include reduction in interest rates and a moratorium on payments on part of the outstanding debt, the official said.
Since this financial structure will differ from bank to bank involved in giving loans to Air India, this is going to be a “big exercise” and therefore time-consuming, he said.
In the meeting, one of the ministers argued that the airline’s debt will continue to mount until it is completely written off. RBI’s view will therefore be critical to the final outcome on Air India’s turnaround plan, he said.
After RBI gives its views, the matter will be referred to the Union cabinet, said minister Ravi after the meeting.
The cabinet will also decide on whether to go ahead with the Dreamliners purchase, said the second official cited above.
Boeing has presented a delivery schedule under which it will supply 14 Dreamliners till 2014.
The turnaround plan includes a freeze on payment of performance-linked incentives to Air india’s 30,000 employees till the airline turns cash positive before tax, and meeting cost cutting and staff reduction targets, which the airline may find unpalatable given resistance from labour unions.
“Employees,” the first official said, “will need to be part of this clarion call.”
The second official said Air India has been granted a credit lifeline for three months by oil companies instead of the current two months, which will allow it more leeway to pay its employees and other vendors.
The move will free up Rs 125 crore. An order from the oil ministry is to be issued soon granting the exemption to Air India, he said.
But the lifeline will only be available to Air India if it’s able to meet its existing payment commitments to oil companies by 2 November.
Air India received Rs 800 crore as equity infusion in 2009-10, Rs 1,200 crore in 2010-11 and Rs 1,200 crore in the year to 31 March.
Jet Airways Ltd and Kingfisher Airlines, which also need to raise Rs 1,500-2,000 crore and Rs 3,000-4,000 crore, respectively, have not been able to do so. Two private airline officials said a lifeline to the state-owned carrier will be bad news for the privately owned rivals.
“This basically means they will continue to underprice the tickets for much longer and make others bleed too,” said a private airline official, who declined to be named. “If other airlines shut down, Air India can go back to selling fares at Rs 12,000 for Delhi-Mumbai, then everyone will be happy.”
Private airlines have lost Rs 3,500 crore in the six months to 30 September, more than the Rs 2,900 crore they lost in the last fiscal year, according to an airline lobby group. Air India’s loss alone was Rs 7,000 crore last fiscal.
Founder of erstwhile low-cost carrier Air Deccan G.R. Gopinath said he does not see a turnaround for Air India unless the government lists it on the stock exchange and brings professionals to run the company or completely privatize it.
“You cannot mortgage the taxpayer’s money ...to protect jobs of 30,000 Air India employees,” he said. “It’s basically throwing good money after bad money
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First Published: Sat, Oct 29 2011. 12 13 AM IST