Home / Companies / News /  Air India gets finance ministry nod to recast bailout package

New Delhi: The finance ministry has approved a proposal of Air India Ltd to recast a government-approved bailout package, said two officials aware of the development.

The proposal is aimed at saving the airline almost 1,500 crore every year in interest costs.

The airline had in 2012 secured about 30,000 crore in equity infusion spread over 10 years from the government that allows it, on average, to draw 3,000 crore every year.

The government has been infusing this amount directly into the company, in return receiving shares in the airline.

It has infused 22,565 crore into the airline so far.

The finance ministry has now cleared a proposal that will allow Air India to take a part of the 3,000 crore in the form of a grant, which will be used to reduce the airline’s interest outgo, said one of the officials cited above.

“This will be a huge relief," the official said, declining to be named. “Air India’s interest payment will reduce and so will its costs. The rationale of the turnaround plan was to reduce interest costs as much as possible."

Air India has 50,000 crore of debt.

The airline’s annual interest burden is 3,000 crore. Post recast, it hopes to pay 1,500 crore towards interest, using some of the grant money to reduce debt.

The aviation ministry has already prepared a cabinet note seeking these changes.

The note is likely to be sent to the Union cabinet soon for approval.

The new financial model proposed by Air India has been in the works for the past three years. The results of the recast are expected to be visible from this fiscal year onwards.

In 2016-17, the airline has budgeted for a net loss of 1,989 crore. In the last fiscal year, Air India halved its loss to 2,636 crore, helped by lower fuel costs, from a loss of 5,859 crore the previous year, Mint reported on 19 May.

The improvement was almost entirely because of the 2,704 crore in savings on jet fuel costs, thanks to a slump in the price of crude oil, which has also benefited other airlines.

Last month, chairman Ashwani Lohani blamed legacy issues dating back to past governments for the airline’s heavy debt burden.

“This 50,000 crore (debt) has accumulated because of legacy issues. It’s not (something) for which the company or its employees are responsible," Lohani said in an interview to Doordarshan last month.

“It will take decades to wipe that off," he added.

He said the airline was looking to become profitable on a year-on-year basis in the next three years and would not seek any cash infusion beyond the 30,000 crore already sanctioned by the government.

Air India, with a fleet of 135 aircraft, the largest in India, connects 103 cities—domestically and abroad—and plans to add 20 planes to its fleet in this fiscal.

New York-based former Jet Airways chief executive officer Steve Forte compared the state of Air India to that of Italy’s Alitalia, which survived on government bailouts until 2006. The European Union had banned such capital infusions thereafter.

Alitalia went bankrupt and shut down before being revived in 2009. It now operates as a private airline with foreign equity participation and a professional management team at the helm that has kept operating costs low.

“Air India needs a severe shake-up," Forte said, adding that Prime Minister Narendra Modi’s government should work to protect Air India’s interests by appointing an entire management board of experienced airline professionals.

The management should then prise the airline loose from the stranglehold of unions, work to increase productivity and develop a marketing strategy to make the airline competitive both in domestic and international markets, Forte suggested.

Once Air India is on the recovery path, the government should think seriously of a timeline for divesting a stake in the airline.

“Get the politicians out of Air India and let it thrive," he said. “The goal should be the rebirth of a competitive airline focused on excellence, efficiency and profit."

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