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Govt to invest Rs 30,000 cr in Air India by 2020: Ajit Singh

The Union Cabinet to cleared a financial restructuring plan (FRP) for the Air India, which includes infusion of additional equity of Rs 30,000 crore into the airlines by the year 2020 and restructuring of its debt.

india Updated: Apr 12, 2012 19:37 IST

In a big boost to ailing Air India, the government on Thursday approved a turnaround plan (TAP) to restructure the operations and the finances of the cash-strapped carrier, including infusion of additional equity.

"The turnaround plan of Air India has been approved," civil aviation minister Ajit Singh told reporters after a meeting of the Cabinet Committee on Economic Affairs (CCEA).

The CCEA approved the TAP and the airline's financial restructuring plan (FRP), which includes additional equity infusion by the government.

Besides, the issue of induction of the much-awaited Boeing Dreamliner-787, part of the TAP, was also given the green signal by the CCEA, official sources said.

They said the issue of allowing foreign airlines to invest in Indian carriers could be taken up by the Cabinet next week.

As part of the airline's restructuring plans, the government had announced infusion of Rs 4,000 crore during the current fiscal in the 2012-13 Union Budget. This would raise the airlines' equity base to Rs 7,345 crore.

US aircraft manufacturer Boeing is expected to deliver the first of the 27 Dreamliners, ordered in 2005, to the national carrier next month. The delivery of these aircraft was initailly to commence from 2009 but the US aircraft-maker deferred it for various reasons, including labour unrest.

The SBI-led consortium of 19 banks had last month approved the FRP which includes debt restructuring of Rs 18,000 crore by the banks and a committed equity infusion by the government.

Asked if Air India would also be allowed to find a suitable foreign airline partner, the minister said the decision to allow foreign airlines to pick up 49% stake was for all Indian carriers.

"Air India will have to find the right suitor... But the government will still own it," he said.

On the FDI issue, Singh further said that investment by foreign carriers would not be through the automatic route and it would have to go through all checks and balances.

"Indian nationals will have substantial ownership and sufficient control. ... Two-thirds of the Directors will have to be Indian. Then there are security issues also," he said.

Regarding Air India, he said the TAP and FRP would also give the airline cash deficit support of Rs 4,552 crore till 2021, as also equity for the already-guaranteed loan of Rs 18,929 crore till the same period for aircraft acquisition.

The minister said the SBI-led consortium of banks have also approved conversion of short-term working capital loans of Rs 11,000 crore into long-term loans.

"By 2020-21, Rs 30,000 crore will be infused. But there will be many check-points. If the airline meets the milestones, it will get the money," he said, adding that a Committee of Officers would be set up in a week to monitor whether the airline was meeting all the set parameters.

These include maintaining on-time performance of upto 90%, passenger load factor of about 73% and improving yields.

To questions about the two subsidiaries which are to be floated, he said while the MRO subsidiary, to be called Air India Engineering Services Limited, would get equity of Rs 375 crore over the next three years, the one handling ground handling, named Air India Air Transport Services Limited, would get Rs 393 crore as equity over 12 years.

Maintaining that both the new subsidiaries would be operationalised soon, the Minister said the MRO subsidiary, where about 7,000 Air India employees would be placed, was expected to tap the potential of nearly USD 1.5 billion MRO business in the Asia Pacific Region.

Similarly, the subsidiary dealing with ground handling and other services would employ about 12,000 Air India staffers. "Both these subsidiaries would be developed as independent business and profit centres".

Asked whether any unrest among employees was expected, Singh said the Justice Dharmadhikari Committee, which had gone into the staff-related issues connected with the merger of two erstwhile government carriers, had also recommended it.

Earlier, the government, as part of the TAP, had announced infusion of Rs 4,000 crore during the current fiscal in the 2012-13 Union Budget. This would raise the airlines' equity base to Rs 7,345 crore.

The FRP would provide relief to Air India from its debt servicing obligations on working capital, in the form of a substantial reduction in interest outlays while giving it the necessary time to improve its operational efficiency and implement the TAP.

Air India had signed four agreements with the banks' consortium on March 31 -- the Master Restructuring Agreement, Working Capital Facility Agreement, Appointment of Facility Agent Agreement and Appointment of Trustee Agreement.

A major highlightof these was the conversion of about Rs 11,000 crore of the airline's working capital into long-term loan, carrying an annual interest of 11 per cent, which would lead to substantial savings of about Rs 1,000 crore in 2012-13 itself.

The government has so far infused equity of Rs 800 crore in 2009-10, Rs 1,200 crore in 2010-11 and another Rs 1,200 crore in 2011-12.

First Published: Apr 12, 2012 12:54 IST