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Further equity infusion required in Air India: Patel

With a mounting debt burden, Air India would require additional equity even after the government infuses Rs 1,200 crore in the next few weeks, Civil Aviation Minister Praful Patel has said.

india Updated: Dec 19, 2010 09:41 IST

With a mounting debt burden, Air India would require additional equity even after the government infuses Rs 1,200 crore in the next few weeks, Civil Aviation Minister Praful Patel has said.

"Further equity infusion is required. The Committee of Secretaries had also recommended an infusion of Rs 5,000 crore," he told PTI when asked whether more equity infusion would be required after the government grants the ailing national carrier Rs 1,200 crore in the next few weeks.

The government had infused Rs 800 crore as additional equity in Air India in the last financial year, primarily to help in reducing its huge debt burden.

Sources said the airline had asked the government for Rs 2,000 crore in the next financial year as additional equity, which has been approved by the Civil Aviation Ministry.

Noting that Air India's actual debt burden was about Rs 18,000 crore, Patel said that "when they buy planes, definitely their debt will go up. The problem is with its working capital, which has to be raised to Rs 7,000-8,000 crore."

So, the additional debt of about Rs 10,000 crore, needs to be addressed, he said in reply to questions. The national carrier's debt on account of fleet acquisition is about Rs 20,000 crore.

Air India has also suggested that the government provide sovereign guarantee to back the loans it has taken so far, primarily to fund its fleet expansion. Such a guarantee would help the airline restructure its debts.

The Reserve Bank recently asked the national carrier to provide a letter of support from the government due to a poor debt-equity ratio of the company.

Patel said the infusion was being made in tranches to make the airline more accountable for performance.

The government has asked Air India to enhance revenues and cut costs drastically in return for the equity infusion.

To questions about the management reportedly seeking government nod to reduce labour cost of the company, Patel said, "Wage rationalisation has to be dealt with by the management in keeping with the larger picture".

Meanwhile, Air India CMD has started holding meetings with the unions on the financial state of the airline. He is understood to have told the employees' representatives that the company would be in dire straits if the government does not infuse the equity of Rs 1,200 crore in it.

Air India Employees Guild, at a recent meeting, raised issues to bring about parity in pay-scales and designations between staffers of the two erstwhile carriers -- Air India and Indian Airlines.

Sources said the financial position could worsen as the management was expecting a revenue deficit of about Rs 1,925 crore in the March-November period.

The airline is also understood to have sought an advance of Rs 800 crore from the government for the international flights that it operates on cost-basis for the President, the Vice President and the Prime Minister.