Photo: Bloomberg
Photo: Bloomberg

Air India may be board-managed if new turnaround plan is cleared

Major decisions will be taken by directors, signalling lesser govt interference in the affairs of the airline

Mumbai: Air India will soon be managed by a board, if a turnaround plan being charted out by the government that involves financial and organization reform is approved, a senior Air India official aware of the development said on condition of anonymity.

“The plan is to make Air India stand on its own feet so that it can be sold in future," said the official cited above.

Major decisions at a ‘board managed’ company are taken by the directors and not the promoters who are not part of the board. As such, if Air India becomes a board-managed company, it would mean less government interference in the affairs of the carrier.

Civil aviation secretary R.N. Choubey had earlier this week said that the government’s new turnaround plan for Air India should be cleared by September-end.

“We will take a call whether this can be done bilaterally between the aviation and finance ministries or whether we have to go to the cabinet for approval," Choubey had said.

A message sent to the aviation secretary on Thursday seeking details of the government’s new turnaround plan did not elicit any response.

Air India, which has Kumar Mangalam Birla and Y.C. Deveshwar as non-official independent directors, will appoint one more independent director from the private sector in the coming days, said the official cited above.

The carrier, which was founded by JRD Tata as Tata Airlines in 1932, has had illustrious private sector officials leading it. JRD Tata remained the chairman of the airline for 25 years, while Russi Mody became the joint chairman of Air India and Indian Airlines after retiring from Tata Steel in March 1993.

During the last few years the Maharaja, as the airline is known, has been headed by bureaucrats.

The government’s attempt to privatise the loss-making carrier hit a roadblock earlier this year with the government not receiving any bids at the end of the 31 May deadline. It subsequently postponed the divestment plan citing poor investment climate on the back of rising costs of running airlines because of a rise in oil prices.

In 2012, the Centre approved a turnaround plan, along with a financial restructuring plan (FRP), for Air India.

According to the turnaround plan, the government had to inject 30,000 crore in Air India for a 10-year period starting 2012 provided the airline met certain performance-related targets.

The national carrier has till date received about 29,730 crore, or 98%, of the equity promised to it under the turnaround plan. The FRP included restructuring of the airline’s working capital loans of about 11,000 crore into long-term loans by a consortium of 19 banks, cash credits of 4,000 crore and non-convertible debenture of about 7,400 crore.

“If the financial restructuring plan was working, Air India wouldn’t have been in the dire straits it is in," said the official cited above.

“The FRP didn’t go wrong but it earmarked crude at $45 a barrel while today crude is at $75 a barrel and the rupee continues to fall against the dollar," the official said.

Air India has also received equity infusion of 980 crore from the government on 31 August, the official mentioned above said, adding that a large part of this equity infusion will be used to service interest on non-convertible debenture by 20 September.

The carrier currently has a net debt of 55,000 crore, including 21,000-22,000 crore of aircraft debt.