Mumbai: The government on Thursday sought Parliament’s approval for infusing 2,345 crore of equity into debt-laden national carrier Air India, which is on a revival plan.

The infusion, which will help Air India manage its operational expenses, comes after the government decided in November to transfer a little over half of its 55,000 crore debt as well as non-core assets into another company as part of a restructure. The idea is that once the interest burden is out of Air India’s books, it will be able to keep expenses under control and focus on attaining efficiency.

Air India will get 2,345 crore of equity infusion, out of which 2,299 is the extra cash outgo from the exchequer, while the remaining is managed by savings, according to a government document tabled in Parliament seeking permission to spend more than the amount budgeted for this fiscal.

The infusion will help the company meet its operational costs, though it is yet to receive from the government the modalities of utilizing the funds, according to an Air India official. High debt, competition from low-cost airlines and high cost of operations were among reasons that led to the company’s decline.

“We have been taking steps to make the airline viable by adding new sectors and services. In November, we have started several night services such as those from Delhi to Coimbatore and Goa," said the official on condition of anonymity. That comes in the wake of a decline in the company’s utilization of its capacity since the beginning of this year.

Air India will have to face up to the intense competition in the aviation sector at a time the market is being captured by low-cost private airlines. The domestic market share of the national carrier slid from more than 13% at the beginning of the year to just over 12% in October, according to data available from the air safety watchdog the Directorate General of Civil Aviation. In the same period, IndiGo stepped up its share from 39.7% to 42.8%. Besides competition, fluctuations in the rupee-dollar exchange rate and volatile jet fuel prices also affect Air India and its rivals.

Policymakers opted to rescue the company after an attempt to privatize it failed in May. Investors were not enthusiastic about taking over a debt-ridden firm in which the government then chose to retain 24% stake. Since 2012, Air India has been on a rescue plan, under which it has received more than 27,000 crore in equity infusion.

The equity infusion in Air India is part of a total additional gross spending of 85,949 crore the government wants to spend this fiscal for which it sought Parliament’s approval. Nearly half of the gross extra spending is for capital infusion in public sector banks through recapitalization bonds. However, only 15,065 crore would be net cash outgo as the rest is funded by savings, according to the second batch of supplementary demands for grants 2018-19 tabled by finance minister Arun Jaitley in the Lok Sabha. An additional spending of 5,344 crore for various railway projects are also part of the proposal.

Close