A king-size bailout for the maharaja

BS Reporter / New Delhi Apr 13, 2012, 00:50 IST


Air India to get Rs 30,231-crore infusion till 2020-21 restructuring of debt approved 19,000 employees to be moved to two new subsidiaries

After more than three years of discussions, the Cabinet Committee on Economic Affairs (CCEA) on Thursday approved an infusion of Rs 30,231 crore in Air India till 2020-21 as part of its turnaround plan. The government has already infused equity of Rs 3,200 crore in the last two financial years

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The government also approved the restructuring of the airline’s debt of Rs 18,000 crore, the formation of two subsidiaries for ground-handling and engineering, and the contentious shifting of over 19,000 of the 27,000 permanent employees to these new operations.

“All this infusion of money is conditional and the performance of Air India will be monitored by a committee formed by the ministry,” said civil aviation minister Ajit Singh.

Singh said there were stiff performance riders put in place for additional equity. These include improving the airline’s on-time performance to 90 per cent in two years from 71 per cent now. It also has to improve its passenger load factor to 73 per cent by 2015, and to further increase it to 75 per cent beyond 2015, from 69 per cent currently.


Based on the plan, Singh said the airline would have operational profit by 2018. Its interest payment outlay is estimated to come down by Rs 1,000 crore after the debt restructuring. The airline has an annual interest outlay of Rs 1,700 crore.


Banks are restructuring the airline’s loans of Rs 18,000 crore. Of that, Rs 10,500 crore will be converted into long-term loans, with a repayment period of 15 years, and the rest Rs 7,400 crore will be repaid to banks through a government-guaranteed bond issue
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The Cabinet was able to push through the formation of the engineering and ground-handling subsidiary. It took the tough decision of bringing the employee-to-aircraft ratio on a par with that of profitable international airlines. With the shifting of staff to the two new companies, Air India’s employee-to-aircraft ratio will be 60 per aircaft if only permanent employees are taken into consideration. However, a large part of the work is outsourced to contract workers. If they are included, the ratio will be 142 employees per aircaft, much better than the average international norm of 150 employees per aircraft.

Air India will initially be looking for a joint venture for the engineering subsidiary.


The Cabinet also cleared the long-awaited deliveries of the Boeing 787 Dreamliners. “All the 27 Dreamliners and three Boeing 777-300 ERs will be inducted by the national carrier but that will happen on sale and lease-back,” Singh said. Air India is to take the deliveries of seven Dreamliners by January next year.