Govt to infuse 1,200 cr into AI next week

Govt to infuse 1,200 cr into AI next week

Mumbai: The government will finally infuseRs 1,200 crore equity into cash-strapped Air India Ltd next week even though the national carrier had not achieved some key targets set by the government, according to two civil aviation ministry officials who did not want to be identified.

The infusion, the next instalment of a 5,000 crore government bailout, has been on the cards for several months, although the Cabinet Committee of Economic Affairs said in October that it wouldn’t happen because the airline had not met its targets.

Mint reported an unnamed government official as saying, in a story published 28 October, that the committee had said it couldn’t approve the release of funds until a group of ministers(GoM) that had set the original targets signed off on the airline’s failure to meet some of them.

Mint couldn’t immediately ascertain whether the GoM has approved the exception.

One of the targets that has not been met by Air India is rationalisation of wages.

Air India spent at least 3,000 crore on paying salaries of 33,000 employees in 2009-10.

It has also not separated its engineering and ground handling divisions as required by the government.

The airline has met other targets such as the upgradation of the information technology (IT) platform and enhancement of revenue.

Further equity infusion (after this 1,200 crore tranche) by the government will depend on the airline’s performance, the officials added.

In August 2009, Air India had approached the committee of secretaries (CoS) set up by Prime Minister Manmohan Singh, seeking a 10,000 crore equity infusion, largely to service debt.

The CoS recommended a cash infusion of 5,000 crore over a period of three years, starting in 2009-10.

Last year, the government gave 800 crore to the airline. The 1,200 crore equity infusion to be made next week will be the second and is to be followed by 3,000 crore that will be given to the airline over the next two years.

“The government has cleared the proposal of disbursing 1,200 crore without any conditions. Air India has met many of the trigger points, including upgrading IT infrastructure, retiring old planes, return of leased aeroplanes and appointing a chief operating officer and independent directors on the board," one of the two officials cited above said.

“For fiscal 2011, Air India will achieve the target of a 2,000 crore jump in revenue, though it may not be able do so with the targeted 2,000 crore cost cuts," he added.

Air India posted a net loss of 5,551 crore in the year ended March against the previous year’s net loss of 7,189 crore.

Air India has a total debt of 40,000 crore, including 18,000 crore of working capital loans.

According to many analysts and former employees, the bailout may not serve to end Air India’s woes even though some of them said the ailing carrier will be able to bring down its cost of debt and raise more funds if this is done.

“Equity infusion may not be the answer to Air India’s ongoing issues and it needs tough measures to put its house in order. (But) the latest cash infusion will help Air India meet the immediate liquidity crunch and the carrier can focus on improving operational efficiency," said Rajeev B. Batra, executive director, KPMG, an audit and consulting firm.

“Initiatives for operational turnaround owill be bogged down by a liquidity crunch in the absence of equity infusion. This should give Air India some respite," Batra added.

In late July, Air India embarked on a turnaround programme aimed at wiping out losses and repaying debt by 2014-15. The carrier also hired Gustav Baldauf as chief operating officer to oversee the turnaround, the first instance of a foreigner occupying a senior position in the state-owned carrier.

The second aviation ministry official said the government is not happy with the current financial and operational efficiency of Air India. “We understand wage negotiation is a critical issue but the airline has not lived up to its promises (even) on other parameters," he said.

In 2009, following a strike, the government rolled back a 50% cut in productivity-linked incentives that account for 30-50% of the salary of Air India employees; the move would have saved the airline 700 crore a year.

“As a tax payer, I am sceptical about Air India’s turnaround. Until and unless the government is going to tighten its control on the airline, the performance is not going to change. Sadly, no one is willing to bite the bullet. Air India should be run as a pure commercial airline," said Rishikesha T. Krishnan, professor of corporate strategy at the Indian Institute of Management, Bangalore, who tracks the aviation sector.