3 min read.Updated: 11 Jun 2014, 12:58 AM ISTP.R. Sanjai
Air India management has requested the Centre to release the next cash infusion due to it under a rescue plan
New Delhi: The management of Air India has requested the new government to release the next cash infusion due to it under a 30,000 crore rescue plan.
The plan, approved in 2012, involves helping the state-owned airline cut its high-cost debt and turn around its operations.
Senior executives of Air India met new civil aviation minister Ashok Gajapathi Raju Pusapati and civil aviation secretary Ashok Lavasa late last month to make the appeal, said two airline officials who spoke on condition of anonymity. “The representatives of the new government are upbeat about Air India and are willing to complement the airline’s efforts," said one of the two officials.
As of 31 March, Air India’s debt stood at ₹ 44,000 crore.
In April 2012, the government approved a financial package to bail out the troubled airline which involved an upfront equity infusion of ₹ 6,750 crore and assured equity support of ₹ 23,481 crore till 2020-21.
The second official said that of the ₹ 8,574 crore that Air India was supposed to get as equity infusion during 2013-14, it had got only ₹ 6,000 crore.
He added that the Congress-led United Progressive Alliance government had allocated ₹ 5,500 crore for Air India in the February interim budget.
If Air India receives the promised equity infusion early in the first quarter of the current financial year, it would avoid upsetting its financial restructuring plan (FRP): a programme devised by the airline to qualify for equity infusion based on strict performance parameters.
The debt-laden airline is taking a series of steps, including 22 specific revenue-enhancement and cost-cutting measures ranging from the sale of tax-free bonds to repay working capital loans to a ban on encashment of privileged and sick leave by employees.
The airline has begun charging for food on some domestic and international sectors by introducing a “buy-on-board" concept and is curtailing flights that do not meet variable costs.
“These measures would result in saving ₹ 3,200 crore, and turn the airline Ebitda-positive at ₹ 1,150 crore," said the second official, adding Air India is expected to clock a “revenue of ₹ 21,290 crore in the current financial year while incurring ₹ 22,525 crore as operating expenses". Ebitda is short for earnings before interest, tax, depreciation and amortisation.
Industry experts still remain sceptical whether these measures will be enough to turn around Air India.
“Whatever is being done at Air India amounts to too little, too late," aerospace journalist Hormuz Peshotan Mama said. The airline has “built-in structural problems, like a bloated and unproductive work-force, and operations on numerous unprofitable routes, to meet the government’s social or even political agendas, which are just not being addressed".
According to Mama, Air India is “just not being allowed to operate along commercial lines. While the debilitating annual losses have come down, very little else has happened to help turn around the airline".
Air India, meanwhile, is in the process of signing an agreement with a Hong Kong-based company to lease five Airbus 320 planes and five small ATR planes from two different aircraft leasing companies to expand its fleet, according to the first official.
“These five Airbus planes will have only 188 economy seats. Air India will float a tender to lease 14 more such Airbus A320 planes and six more ATR planes," the official said.
This official insisted that Air India is “operating very much like a commercial airline".
“Globally, Lufthansa, Singapore Airlines and other airlines have hived off their engineering and ground-handling services into separate entities. The budgeted revenue of ground handling unit (for Air India) is ₹ 750 crore for the first year and that for the MRO unit is ₹ 650 crore, which includes third-party revenue as well as handling Air India flights," the first official said.
Air India’s ground-handling unit is expected to be profitable from its first year of operations, while the MRO company is expected to be profitable within three years, he added.
Aerospace journalist Mama, on his part, insisted that privatisation is the way to go for Air India. According to him, the question before the government “is not whether Air India should be privatized, but whether it can be privatized".
“Due diligence by any potential investor will clearly show that the risks are enormous, while the rewards are few... As things stand, Air India cannot be saved," he said.
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