26 Jul 2009, ET Bureau
NEW DELHI: A restructuring plan for Air India says the national carrier needs an urgent infusion of Rs 20,000 crore to tide over its worst ever financial crisis, up five times from the amount it was seeking from the government in October 2008.
The plan made by SBI Caps was presented to the committee of secretaries on Saturday, seeking an equity infusion of Rs 10,000 crore from the government, besides permission to raise a similar amount through a bond issue or through a soft loan, a government official familiar with the development told SundayET.
An Air India spokesman refused to comment for the story saying he could not say anything more than what was mentioned in the carrier's official statement. At the outset of the meeting the airline presented its plan to reduce cost and ways to increase revenue. It then detailed its requirement and proposed to raise Rs 10,000 crore equity from the government. In its presentation the airline indicated a soft loan or bond issue of similar amount, another official said on condition of anonymity.
In October 2008, Air India had submitted a proposal seeking equity infusion of Rs 1,231 crore and a soft loan of Rs 2,750 crore with an interest of about 5% payable over 15 years.
The civil aviation ministry, the administrative ministry for Air India, though is not in favour of giving the airline more than Rs 3,000 crore. "Air India does not need financial assistance of more than Rs 2,500 crore. That too in the form of equity. Apart from than it only needs to increase revenue and cut cost," civil aviation minister Praful Patel said.
The CoS has asked finance ministry to go into greater detail and examine the extent of assistance to be given to the airline. Air India and SBI Caps made a presentation to the CoS on Saturday and gave a revival plan for the company. It also gave its future revenue projection and measures being taken to cut cost.
The airline was told by the high-level committee to cut cost and improve revenue for getting any assistance from the government. The panel said that the assistance would have to be matched by an aggressive cost reduction and a better revenue management by the airline.
"The airline would have to assure that its future sustainability is not built on cards. Instead of a long term plan of 18-months for saving and revenue management the company should give quarterly plans. They need to get a concrete plan," a senior official who did not wish to be identified. He, however, said that the current equity base of the company was very low and it needed to be expanded.
A civil aviation ministry statement said that Air India was told to come up with a concrete cost reduction proposal including replacement of the current productivity linked incentive (PLI) with an alternative scheme within the framework of the department of public enterprises (DPE) guidelines.
The CoS is expected to meet again by the end of August to review the financial restructuring being undertaken by the airline.
The high-level panel has asked the aviation company to appoint a cost auditor to monitor, review and ensure that the cost reduction and operational efficiencies are effected. In a major relief to the cash-strapped Air India, the CoS recommended a three-months credit limit by oil companies to the airline.
While a direct financial help from the government is yet to come for Air India, a recent finance ministry circular directing all the government employees to travel only by the national carrier is estimated to give an annual business of Rs 2,000 crore to the company.
Air India has an accumulated loss of Rs 7,200 crore as on March 2009. The company is currently finding it difficult to meet the operational cost. The airline has so far borrowed about Rs 16,000 crore from nearly 17 banks as overdraft, mainly to pay off its debt on account of fleet acquisition.
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