AI bailout could come with some pain
Air India, ailing on the back of a deepening liquidity crisis and poor passenger load, is expected to receive a life-saving dose from the government by next month, but the bailout will require the airline to make several hard decisions.india Updated: Jul 25, 2009 23:05 IST
Air India, ailing on the back of a deepening liquidity crisis and poor passenger load, is expected to receive a life-saving dose from the government by next month, but the bailout will require the airline to make several hard decisions.
A committee headed by Cabinet Secretary K M Chandrasekhar on Saturday discussed options including a financial package through a mix of debt and equity to help the airline stay afloat.
“It has requested the finance ministry to critically examine the extent of assistance to be given to National Aviation Company of India Limited (NACIL operates Air India),” an official statement said.
Separately, the petroleum ministry has been requested to allow AI to purchase jet fuel from government-owned oil firms with a credit limit of three months.
“It is a welcome step,” AI CMD Arvind Jadhav told HT.
But any financial assistance from the government would have to be matched by an aggressive cost reduction and better revenue, said a government official tracking the matter.
The official, who didn’t want to be named, said the government is mindful of a possible backlash to using taxpayers’ money to revive an airline that has piled up Rs 7,200 crore in losses due to poor management.
NACIL was formed by merging AI and domestic carrier Indian Airlines in 2007. With a fleet size of 148 aircraft and 31,000 employees, the airline has an unusually high employee-aircraft ratio of 209:1 against the industry average of 150:1.
The airline has been asked to immediately appoint a cost auditor to monitor, review and ensure that cost reduction and operational efficiencies are effected.
SBI Caps was engaged by the airline to present a restructuring plan. It has suggested about 8 options that include tough options involving reduction in the wage bill by a revised formulation of perquisites and performance bonuses.