Air India Gets Government Refinancing

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Feb. 19 – The Indian government approved an equity infusion of US$177million in two equal monthly installments to the National Aviation Company of India Ltd, the holding company for Air India.

NACIL is currently facing severe financial losses. Costly legacy assets, a weakening revenue stream and high cost structure are resulting in rising liabilities. The equity infusion will help the troubled carrier over its cash flow problem and finance fleet acquisition plans. A meeting of the Cabinet Committee on Economic Affairs, presided over by Prime Minister Manmohan Singh, gave its nod to the fresh equity infusion.

“The equity infusion had been approved by the Group of Ministers headed by Finance Minister Pranab Mukherjee. The release of funds will be calibrated to achieving the milestones laid down by the ministerial group,” an official spokesperson said.

The company’s present paid-up equity capital is US$32 million. This was found grossly insufficient for an aviation company of its size. The fresh equity would preclude borrowing from the markets at a high cost, officials said.

The airline had posted a loss of about US$1.6 billion in the last two fiscal years.

However, the equity infusion was approved only after Air India committed to a turnaround plan, which includes cost reduction and revenue enhancement program, fleet rationalization, route profitability, manpower rationalizations and structural changes. The company is attempting to reduce the size of its fleet from 146 aircraft to 105 by March 2011. NACIL will remove 22 aircraft from the fleet by way of leasing out, return of leased aircraft and sale of aircraft.

Air India has also been asked to take the following steps: rationalize manpower and productivity-linked incentives, fully integrate the erstwhile Indian Airlines with Air India, review all agreements on technical and operational matters, return all leased aircraft at the earliest, re-deploy staff to curb wasteful expenditure, close all overseas offices where Air India does not operate.

In common with other nationalized airlines overseas, Air India has suffered from Uuion problems, protectionism and a lack of management experience, despite being the national carrier. With the liberalization of India’s aviation industry, its service quality has been eroded through the development of private carriers such as Kingfisher, Jet Airways and Spice Jet who appear better managed, and provide better quality service.