Air India to go to Modi with lifeline proposal

Okay wanted for Rs 10,000 cr of tax-free bonds, plus Rs 3,000 cr of cash infusion, both apart from year's scheduled Rs 5,500 cr of equity infusion

State-owned Air India is likely to seek permission from the new government of Prime Minister Narendra Modi to raise Rs 10,000 crore through an issue of tax-free bonds in the current financial year.

The airline is additionally seeking immediate cash infusion of Rs 3,000 crore to repay loans it had taken last year to clear dues to vendors, in the event of a shortfall in the equity infusion earlier promised by the government.

Both are likely to be part of the presentation to be made to the PM this week by the ministry of civil aviation (MoCA). A senior AI executive said, "We are looking at raising Rs 10,000 crore through the bond issue to settle our working capital debt. We had made a request earlier but had at the time not got approval from the government. We are also seeking cash infusion of Rs 3,000 crore to repay loans we had raised last year due to shortfall in infusion of promised equity capital."

The Union finance ministry had earlier rejected the request on the ground that airlines had not been accorded the status of infrastructure companies.

AI currently has debt of Rs 42,000 crore, of which Rs 22,000 crore is for working capital. In October last year, the finance ministry had extended a sovereign guarantee to AI for raising cheaper funds from banks. The approval enabled the airline to negotiate with banks to raise Rs 3,000 crore from financial institutions, as the government was not in a position to infuse more resources into the carrier. There was a shortfall of around Rs 2,500 crore in the total sum of Rs 15,600 targeted for infusion in the airline in FY13 and FY14, said a senior AI official.  

According to the airline's turnaround plan, the government is to infuse Rs 30,000 crore over nine years, starting from 2012-13.

For the current financial year (2014-15), AI is scheduled to receive equity infusion of Rs 5,500 crore from the government. Of this, the first tranche of Rs 1,375 crore has been released. The airline plans to utilise this money to expand international operations. It would start direct flights to Rome and Milan with newly acquired Boeing 787 Dreamliners. Flights to Moscow would follow within a few months.

The airline's losses widened to Rs 5,400 crore in 2013-14, primarily on high operational cost. It also missed the target of Rs 1,040 crore in operational profit; this is expected to be Rs 770 crore. The net loss was Rs 5,100 crore for 2012-13 and Rs 7,100 crore in 2011-12. The second quarter of FY14 was the worst for the airline, when it missed its revenue target by Rs 700 crore because of lower passenger load and a local fare war, said sources. It, however, hit the revenue target for 2013-14 of Rs 19,300 crore.

AI recently signed a pact with MoCA on the financial and operational targets in 2014-15. The agreement specifies targets for categories based on scenarios (depending on whether the airline's performance is average, good or excellent).Another AI senior executive said, "The oversight committee would continue to evaluate the performance on targets set in the turnaround plan. The agreement with the ministry is separate and more broad-based. Every parameter of evaluation has been assigned a weight and the airline's performance in each would be assessed for an overall rating."

LOOKING FOR A TURNAROUND
n The finance ministry had earlier rejected the request on the ground that airlines had not been accorded the status of infrastructure companies

n AI currently has debt of Rs 42,000 crore, of which Rs 22,000 crore is for working capital
n In October last year, the finance ministry had extended a sovereign guarantee to AI for raising cheaper funds from banks.
n According to the airline's turnaround plan, the government is to infuse Rs 30,000 crore over nine years, starting from 2012-13