New Delhi: Loss-making national carrier Air India will be relieved of 29,000 crore of debt as part of the turnaround plan being executed, a senior official said on Thursday. Civil aviation secretary R. N. Choubey told reporters that transferring the large chunk of Air India’s massive accumulated debt of 55,000 crore will be a partial but significant relief to the national carrier.

Mint had reported on Tuesday that a ministerial panel led by finance minister Arun Jaitley had decided to transfer a significant amount of Air India debt and Air India’s profit-making, ground-handling arm to a special purpose vehicle. The idea is to sell the ground-handling arm and use the proceeds to retire the debt.

Choubey said that Air India Asset Holding Co. Ltd, the SPV, has already been incorporated.

Air India Air Transport Services Ltd (AIATSL) is the largest ground handling company in India and is present in almost all airports across the country where the airline operates. The company has close to 80-85% share of the domestic and international ground handling business in India, according to Air India executives.

Choubey also said the aviation ministry has asked Air India to take steps to improve efficiency and cut costs, which are expected to fetch a saving of 2,000 crore a year.

The government is also working on proposals to give relief to the aviation sector as a whole as the recent spike in jet fuel price had put airlines in a tight spot as they find it hard to pass on the increased cost to consumers in a highly competitive market. Jet fuel accounts for about 40% of airline cost.

Indian airlines will need equity infusion of about 35,000 crore over the next 3-4 years to reduce their debt burden, rating agency ICRA Ltd said on Thursday.

Choubey said that the aviation ministry has requested the revenue department to put aviation turbine fuel under goods and services tax (GST) and also to address certain tax credit related issues faced by the aviation sector. “If airlines are not in a position to service their debt, the debt burden will go up," explained the secretary. Civil aviation ministry has for a long time been pressing for the inclusion of jet fuel in GST but a decision by the federal indirect tax body the GST Council requires the consent of state governments.

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