The cabinet committee on economic affairs (CCEA) has turned down a second equity infusion amounting to Rs1,200 crore for Air India Ltd on grounds that it had failed to meet some promised targets, potentially leaving the state-run carrier in financial limbo.

Air India received an equity infusion of Rs800 crore from the government in the last fiscal. It was to receive a further Rs1,200 crore in the current fiscal conditional on meeting some targets, including revenue generation and cost cuts.

Performance review: Civil aviation minister Praful Patel. Harikrishna Katragadda/Mint

The equity infusion is critical for the airline’s cash flow as well as to raise more capital that would help it pay back some of its Rs18,000 crore of debt.

A government official familiar with the matter said CCEA had made it clear that it cannot approve the release of the money until an exception is okayed by a group of ministers (GoM) that had specified the targets for Air India to achieve.

The aviation ministry has now sent the proposal to finance minister Pranab Mukherjee, who headed the GoM, seeking an exception to the rules before it can go back to CCEA.

“The fear is that they (GoM) may put new conditions, which may be even tougher to meet for the airline," the government official said.

The airline may also find it very difficult to persuade the government to open its coffers further to release an additional Rs2,000 crore equity infusion it has been hoping to seek unless it meets its targets.

“It would be difficult to go back to them without meeting (targets) next time," said the same official, who did not want to be named.

Key targets, according to an aviation ministry statement in February when the Rs800 crore was released, include complete rationalization of workforce and productivity-linked incentive payments, complete integration of the operations of Air India and the erstwhile Indian Airlines, an early return of leased aircraft, large-scale redeployment of staff to curb expenditure, and closure of all offices in overseas locations where Air India does not operate.

Air India has made significant improvements in some domains. It has been able to, for instance, increase revenue in the April-September period by upwards of Rs800 crore, improve the on-time performance of its flights, return several leased aircraft and save on fuel costs, said a second government official, who too did not want to be named.

Yet, it has not been able to make much headway in trimming the wage bill or in the rationalization of its workforce.

Instead, Air India has added at least four top-level officials, including a new chief operating officer, Austrian Gustav Baldauf, adding around Rs7 crore annually to a wage bill estimated at Rs3,000 crore. Air India has around 32,000 employees.

The last equity infusion of RS800 crore, according to a previous government statement, was cleared after the carrier showed savings of Rs1,911 crore in 2009-10.

On Wednesday, civil aviation minister Praful Patel called for a performance review meeting of the airline on 29 November, according to a third person familiar with the matter. The review meeting would include steps taken by each of the airline’s departments to improve revenue and cut costs. The airline will make a presentation to the minister and explain the issues that need “attention at his level" to meet its targets, added the person, who spoke on condition of anonymity.