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NEW DELHI: The government approved a Rs 30,000 crore bailout for Air India on Thursday despite several Cabinet ministers being sceptical of the move.
The funds are proposed to be pumped in over the next nine years but there will be an immediate infusion of Rs 6,750 crore to meet the airline's working capital requirement. This is in addition to the equity infusion of Rs 3,200 crore that has already been done.
The clearance came after a long discussion in the Cabinet in which many ministers pitched for equity infusion on the grounds that it was strongly needed to bail out the national carrier.
Planning Commission deputy chairman Montek Singh Ahluwalia and home minister P Chidambaram are learned to have flagged the need to monitor the airline's performance, while agreeing to fund infusion. "We should check the performance to see if the milestones promised are being achieved," said a minister who attended the meeting.
Sources said that some ministers were unsure about how Air India would be able to meet the performance parameters such as aircraft occupancy, on-time performance, fleet utilization and rationalization of employees' pay structure. In fact, some of them went on to question the rationale for a national carrier when countries such as Italy, Switzerland and Germany had given up on the practice.
However, NCP leaders Sharad Pawar and Praful Patel, the former aviation minister during whose term Air India and Indian Airlines were merged, pitched for extending a fresh lifeline to the beleaguered public sector carrier. With doubts over Air India's ability to turn the corner, the issue quickly turned to allowing foreign airlines to buy into Indian carriers.
Civil aviation minister Ajit Singh then batted for fresh capital infusion to restructure the airline struggling with loans and dues of more than Rs 67,500 crore.
Along with financial support, AI was allowed to induct the 27 Boeing 787 Dreamliners and three Boeing 777s through the sale-and-lease-back model to avoid fresh debt on its books. These planes were ordered as part of the 111-aircraft deal for AI and erstwhile Indian Airlines in 2005 for Rs 50,000 crore. Incidentally, the comptroller and auditor general's report on AI had termed the massive aircraft acquisition purely through debt a "recipe for disaster".
The cabinet committee on economic affairs, which cleared AI's financial turnaround plan (TAP), also gave the go-ahead to carve two new subsidiaries - a maintenance, repair and overhaul unit and another for ground handling - out of the airline that will accommodate around 19,000 of the airline's total workforce of 28,000 employees. AI will give monetary support of Rs 768 crore to these two units.
Singh later said that now AI will get additional equity of Rs 30,231 crore between 2012 and 2021 if it fulfils "the tasks set out in the TAP and meets all milestones on a regular basis". He added that AI would now issue government-backed non-convertible debentures (NCDs) worth Rs 7,400 crore to its lenders to repay part of its Rs 21,200 crore working capital loans. The airline will now get equity support for cash deficit of Rs 4,552 crore and money for the already guaranteed aircraft loan of Rs 18,929 crore till 2020-21. Singh added that banks had approved conversion of short-term working capital loan of Rs 11,000 crore into long-term loan.
"An oversight committee will be constituted to monitor and ensure that the milestones are achieved before the release of tranches," a minister said.
So far, AI has been getting equity from the government only when it had to meet some urgent financial commitment like staving off strike from unpaid employees. The airline's financial condition is in the doldrums. While Rs 21,200 crore is its working capital loan, Rs 22,000 crore is the long term loan for aircraft acquisition. AI's accumulated losses are Rs 20,320 crore and its owes Rs 4,600 crore to vendors and employees.
Whether the fresh equity support of more than Rs 30,000 crore committed to AI on Thursday proves to be a case of throwing good money after bad remains to be seen.
Govt clears Rs 30,000 crore Air India bailout - The Times of India
__________________________________________________________________________________
So the White Elephant gets another lease of life, courtesy of Indian tax payers.
The funds are proposed to be pumped in over the next nine years but there will be an immediate infusion of Rs 6,750 crore to meet the airline's working capital requirement. This is in addition to the equity infusion of Rs 3,200 crore that has already been done.
The clearance came after a long discussion in the Cabinet in which many ministers pitched for equity infusion on the grounds that it was strongly needed to bail out the national carrier.
Planning Commission deputy chairman Montek Singh Ahluwalia and home minister P Chidambaram are learned to have flagged the need to monitor the airline's performance, while agreeing to fund infusion. "We should check the performance to see if the milestones promised are being achieved," said a minister who attended the meeting.
Sources said that some ministers were unsure about how Air India would be able to meet the performance parameters such as aircraft occupancy, on-time performance, fleet utilization and rationalization of employees' pay structure. In fact, some of them went on to question the rationale for a national carrier when countries such as Italy, Switzerland and Germany had given up on the practice.
However, NCP leaders Sharad Pawar and Praful Patel, the former aviation minister during whose term Air India and Indian Airlines were merged, pitched for extending a fresh lifeline to the beleaguered public sector carrier. With doubts over Air India's ability to turn the corner, the issue quickly turned to allowing foreign airlines to buy into Indian carriers.
Civil aviation minister Ajit Singh then batted for fresh capital infusion to restructure the airline struggling with loans and dues of more than Rs 67,500 crore.
Along with financial support, AI was allowed to induct the 27 Boeing 787 Dreamliners and three Boeing 777s through the sale-and-lease-back model to avoid fresh debt on its books. These planes were ordered as part of the 111-aircraft deal for AI and erstwhile Indian Airlines in 2005 for Rs 50,000 crore. Incidentally, the comptroller and auditor general's report on AI had termed the massive aircraft acquisition purely through debt a "recipe for disaster".
The cabinet committee on economic affairs, which cleared AI's financial turnaround plan (TAP), also gave the go-ahead to carve two new subsidiaries - a maintenance, repair and overhaul unit and another for ground handling - out of the airline that will accommodate around 19,000 of the airline's total workforce of 28,000 employees. AI will give monetary support of Rs 768 crore to these two units.
Singh later said that now AI will get additional equity of Rs 30,231 crore between 2012 and 2021 if it fulfils "the tasks set out in the TAP and meets all milestones on a regular basis". He added that AI would now issue government-backed non-convertible debentures (NCDs) worth Rs 7,400 crore to its lenders to repay part of its Rs 21,200 crore working capital loans. The airline will now get equity support for cash deficit of Rs 4,552 crore and money for the already guaranteed aircraft loan of Rs 18,929 crore till 2020-21. Singh added that banks had approved conversion of short-term working capital loan of Rs 11,000 crore into long-term loan.
"An oversight committee will be constituted to monitor and ensure that the milestones are achieved before the release of tranches," a minister said.
So far, AI has been getting equity from the government only when it had to meet some urgent financial commitment like staving off strike from unpaid employees. The airline's financial condition is in the doldrums. While Rs 21,200 crore is its working capital loan, Rs 22,000 crore is the long term loan for aircraft acquisition. AI's accumulated losses are Rs 20,320 crore and its owes Rs 4,600 crore to vendors and employees.
Whether the fresh equity support of more than Rs 30,000 crore committed to AI on Thursday proves to be a case of throwing good money after bad remains to be seen.
Govt clears Rs 30,000 crore Air India bailout - The Times of India
__________________________________________________________________________________
So the White Elephant gets another lease of life, courtesy of Indian tax payers.
