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Air India to get Rs 2,000-cr equity infusion

September 08, 2009 02:11 IST

The Civil Aviation Ministry has moved a proposal to infuse Rs 2,000 crore of equity by December as the first phase of financial restructuring to bail out ailing Air India with some riders. Currently, A-I has an equity capital of only Rs 145 crore and debt of over Rs 16,000 crore.

The plan is to stagger the infusion of Rs 5,000 crore of fresh equity in the next few years, a senior government official said confirming the development.

The riders include a more aggressive plan for cost cutting that would involve restructuring the contentious productivity-linked incentive pay and a voluntary retirement scheme to shed flab. The carrier has an employee strength of around 32,000.

The airline has also been directed to pick up elements from the turnaround strategy of other international carriers like Malaysian Airlines and Chile Air.

A proposal for the specific financial restructuring will be placed before the Cabinet  soon for its approval. Last week, the Committee of Secretaries (CoS) under the chairmanship of cabinet secretary K M Chandrasekhar asked A-I to go in for more aggressive cost-cutting measures, though it was satisfied with the measures taken till date.

The CoS had also asked the ministry to prepare a note for financial restructuring of the airlines, in coordination with the Finance Ministry.

The airlines had losses of Rs 5,000 crore for 2008-9 and has a massive investment programme  of Rs 45,000 crore to buy 111 aircraft. Of this, as many as 50 aircraft have already been delivered. The company failed to go for an Initial Public Offer to raise money from the market to finance the acquisition and the low equity base made it difficult to raise any more debt to finance these acquisitions.

As part of its 36-month turnaround plan, A-I hopes to go in for an IPO in the third phase of this period. In the first phase, the company will also shift 10 aircraft to the low-cost carrier model in the domestic skies. If it succeeds, the plan is to convert a third of domestic flights into an LCC service.