The Cabinet on Thursday cleared the proposal for two subsidiary units for Air India—Air India Engineering Services and Air India Transport.
The civil aviation ministry had, for long, proposed two strategic business units for the airline–one for engineering and another other for ground handling.
About 40 per cent of Air India employees (12,000) would be transferred to Air India Transport.
This unit would have authorised capital of Rs 1,000 crore.
|WHAT THE MINISTERS DECIDED
- Rs 10,901 cr to go for interest subvention of short-term crop loans up to Rs 3 lakh
- Rs 7,634 cr to go to public sector banks, regional rural banks and cooperative banks
- Rs 3,267 cr to go to Nabard to refinance co-operative and regional rural banks
- Rs 442-cr interest subvention for small and marginal farmers
- Rs 234.18-cr infusion into newsprint company NEPA Ltd for revival
- Air India subsidiaries Air India Engineering Services and Air India Transport to be set up — for engineering and ground handling
- 12,000 Air India staff to be transferred to Air India Transport
- 7,000 staff to go to Air India Engineering Services
- Cabotage policy relaxed to help Vallarpadam container terminal business
Air India would provide equity infusion of Rs 393 crore over a period of 12 years. In the first year, there would be equity infusion of Rs 150 crore.
Ministry sources said this strategic business unit was expected to record profits from the first year of operations.
The second subsidiary, Air India Engineering Services, is expected to account for 7,000 employees and authorised capital of Rs 1,000 crore.
Over three years, it is likely to record equity infusion of Rs 375 crore. It is estimated the unit would turn profitable from 2017-18.
The formation of profit-making units and shifting of staff are key components of the airline’s turnaround plan.
These units would scout for business and provide services to Air India at cheaper rates.
The move would shift a wage bill of Rs 931 crore to the engineering wing and one of Rs 600 crore to the ground handling wing. Currently, the annual wage bill of Air India is about Rs 3,100 crore. The services provided to Air India by these subsidiaries would come under the tax ambit.
Many, however, have questioned the move. In the wake of the recent strike by Air India pilots (primarily due to the failure of a merger between erstwhile Air India and Indian Airlines), many stakeholders had expressed concern.
A senior Air India engineer said, “We wanted a clear picture on the business plan. There is no clarity on service conditions and the human resource policies in the new company. If the new company fails, who will pay us? All this has not been discussed.”'
Air India has debt of about Rs 46,000 crore over accumulated losses of Rs 20,000 crore. Of the airline’s total debt, loans for buying aircraft stand at Rs 20,185 crore, working capital loans are worth Rs 22,165 crore and overdues account for the remaining amount. Accounting to the turnaround plan for Air India, it is slated to record equity infusion of Rs 30,000 crore till 2021.