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Committee to vet AI turnaround plan this week

As the government prepares to consider the Air India’s pleas for infusion of additional equity and a soft loan, a high-level Committee would meet for the first time this week to vet a turnaround plan prepared by the national carrier.

india Updated: Jul 19, 2009 11:24 IST

As the government prepares to consider the Air India’s pleas for infusion of additional equity and a soft loan, a high-level Committee would meet for the first time this week to vet a turnaround plan prepared by the national carrier.

A Committee of Secretaries, headed by Cabinet Secretary K M Chandrasekhar, would be studying the airline’s proposals and plans to cut costs and enhance savings in the backdrop of estimates that it would be incurring a loss of Rs 7,200 crore in 2008-09, one of the highest in its history.

Faced with an average monthly loss of Rs 250 crore, Air India has finalised a turnaround plan to generate revenue and streamline operations as it seeks a Rs 3,000 crore soft loan from the government, besides equity infusion, informed sources said.

The airline has so far borrowed about Rs 16,000 crore from 17 banks as overdraft and the interest liability on them is estimated at about Rs four crore a day, the sources said.

With Air India’s losses mounting to an estimated Rs 7,200 crore in 2008-09, its turnaround plan aims at generating Rs 3,000 crore through internal accruals over the next six months, they said.

Air India’s loss in 2007-08 stood at Rs 2,226 crore compared to Rs 688 crore loss incurred by Air India and Indian Airlines put together during 2006-07, the latest Economic Survey has said.

Besides generating Rs 3,000 crore from its own accruals, the airline’s turnaround plan also envisages mobilisation of an additional revenue of Rs 1,800 crore through cost-cutting and savings, the sources said.

The short-term turnaround target is to achieve a break even in the next six months.

As per the 2009-10 Budget, AI would have to raise Rs 8,165 crore out of its own resources or borrowings primarily to fund its fleet acquisition programme.

A separate plan has been worked out to return its leased aircraft at the earliest. Work is on to review the lease contracts and redraw the fleet acquisition plan. It has already received 49 of the 111 aircraft it ordered.

Besides, the civil aviation ministry is in talks with the petroleum ministry urging it to give six months credit to Air India to purchase jet fuel. Air India’s outstanding to the state-owned oil companies was Rs 542 crore in March.

On manpower issues, the sources said, about 5,000 employees would retire in the next three years and no new recruitment would take place for the next three years.

Civil Aviation Minister Praful Patel recently said a seven-member International Advisory Board, with top retired officials of global carriers, is being created in Air India to turn it around from the present financial crisis. It is likely to be headed by industrialist Ratan Tata.