State-run National Civil Aviation Company Ltd that runs Air India received a lifeline on Thursday with the government approving a Rs 800-crore equity infusion into the cash-strapped airline.
The funds will be released in two instalments. The details are yet to be worked out. The cabinet committee on economic affairs (CCEA), headed by Prime Minister Manmohan Singh, on Thursday approved the recommendation made by a group of ministers (GoM) headed by Finance Minister Pranab Mukherjee.
Nacil, formed in 2007 after the merger of domestic carrier Indian with flag carrier Air India, is saddled with accumulated losses of Rs 7,200 crore and debt liability of more than Rs 16,000 crore, resulting in an interest outgo of Rs 4 crore a day.
The GoM was, however, unhappy with the carrier’s performance as it was unlikely to achieve savings of Rs 2,000 crore by March as planned. So far, it has managed save just about Rs 800 crore.
Any more government equity infusion into the airline would be subject to the execution of the airline’s turnaround plan.
“The release of funds will be calibrated to the achievement of milestones laid down by the GoM,” a government release said.
“We are awaiting further details from the government and terms and conditions attached to the equity infusion,” an Air India spokesman said.
Sector experts feel the funds infusion “is too little, too late”.
“In any financial restructuring, timing of funds infusion is of critical importance,” said Kapil Kaul, chief executive officer of consulting firm Centre for Asia Pacific Aviation.
Kaul said the funds infused were very small and long overdue.
The airline has drawn out a “multi-pronged” plan that includes rationalisation of manpower and productivity linked incentive, large-scale redeployment of staff to curb wasteful expenditure and closure of overseas offices where the airline does not operate.
Nacil plans to reduce its fleet from 146 aircraft to 105 by March 2011 that will cut its fuel and maintenance costs by Rs 600 crore annually.