Air India banks on improved report card

Air India banks on improved report card

New Delhi: The government will review the performance of Air India in the past one-and-a-half years before signing off on the next instalment of a rescue package that involves pumping a total of Rs2,000 crore into the airline.

The airline has higher revenue, lower losses, cost cuts, higher occupancy and a new management structure to show in its favour when a group of ministers (GoM) meets to decide if the time is right to offer a second equity infusion of Rs1,200 crore, two government officials said.

The GoM will meet on 14 September to review the airline’s performance and likely consider further equity infusion, Mint reported on 3 September. The cabinet committee on economic affairs is also likely to meet soon to discuss the infusion.

In November, a GoM led by finance minister Pranab Mukherjee laid down performance-related conditions for infusing at least Rs2,000 crore into the airline, run by the National Aviation Co. of India Ltd (Nacil). The first tranche of Rs800 crore was paid last fiscal.

Many of these conditions have been met by the airline, the officials said, requesting anonymity.

Air India slashed operating losses from Rs5,671 crore in 2008-09 to Rs3,645 crore in 2009-10; losses before deferred tax fell from Rs7,188 crore to Rs5,656 crore. It flew 1.38 million additional passengers, improving average flight occupancy from 59.5% to 64.6%.

“It’s a definite sign of improvement," one of the two officials said.

Although the airline continues to make losses in the current fiscal, it has increased revenue by 25%, averaging an extra Rs6 crore every day over the same period last year.

In the four months ended 31 July, Air India earned Rs3,577 crore in revenue, against Rs2,843 crore in the year-ago period, an increase of Rs734 crore.

Losses for the three months ended 30 June were reduced by Rs100 crore, the second official said.

In addition, Air India will likely show cost cuts amounting to Rs2,500 crore in 2009-10 over the previous fiscal, mostly due to savings on fuel costs, route rationalization and the return of leased aircraft, said a third government official, who also asked not to be named.

Reduced fuel expenses alone account for Rs1,708 crore in savings. The carrier spent Rs7,188 crore on fuel in 2008-09, more than one third of its overall expenditure of Rs18,896.45 crore that year. But as prices fell from the peak of 2008, it brought fuel expense down to Rs5,480 crore in the next fiscal.

Another condition for the cash infusion was the appointment of independent directors and a chief operating officer (COO) to execute a turnaround plan.

Air India has signed on five part-time non-official directors: Anand Mahindra, vice-chairman and managing director of Mahindra and Mahindra Ltd; Federation of Indian Chambers of Commerce and Industry secretary general Amit Mitra; industrialist Harsh Neotia; Dubai-based Indian businessman Yusuff Ali M.A.; and former Indian Air Force chief Fali H. Major.

Austrian Gustav Baldauf has been appointed COO and will report to chairman and managing director Arvind Jadhav.

Infusion of cash is crucial for the state-run airline, which has accumulated Rs14,000 crore in losses and Rs18,000 crore in debt because of a 2007 plan to induct 111 aircraft.

The carrier now has a fleet of 135 aircraft, of which 81 are new, and 30 more are to join in the next four years.

Kapil Kaul, India chief executive at the Centre for Asia Pacific Aviation, said the airline needs to sustain these improvements. “The current numbers are because of the strong growth we’re seeing in the market. Air India has got the benefit that everyone has got."

He estimates that the airline will bring losses down to around Rs3,000 crore in fiscal 2010-11.

“We shouldn’t get very excited about the numbers," he added.