Govt to infuse Rs 5,000 crore in AI

Plans annual cost-cutting target of Rs 3,000 crore and enhancement of Rs 2,000 crore in revenue

The government of India is planning to infuse Rs 5,000 crore into its loss-making airline, Air India, in a phased manner, Union Minister of Civil Aviation Praful Patel said in a press meet here today.

“The government has demonstrated its sincerity and agreed to an equity infusion... of Rs 5,000 crore,” Patel said after a meeting with Air India management and unions.

The minister held the meeting to review the turnaround plan for the airline, which lost Rs 7,200 crore last year. He said Nacil, the holding company, is planning an annual cost-cutting target of Rs 3,000 crore, along with an enhancement of Rs 2,000 crore in revenue.

“The equity infusion will be conditional to cost-cutting measures and revenue enhancement measures taken within the company,” Patel said.

The announcement comes two weeks after AI’s executive pilots had gone on a mass sick leave, protesting cuts in their productivity-linked allowances. The management had deferred the cut and the government had formed a committee of the AI board to examine the issue. There are 14 unions of pilots, cabin crew, engineers, officers and other employees in the airline.

“Air India employees have shown a lot of understanding. It seems management and unions can forge an understanding of the way forward,” the minister said.

The airline is looking to add 7-8 per cent of market share to achieve the additional revenue target. According to the minister, AI can get Rs 100 crore of additional revenue with government business coming back to it.

Of the annual cost-cutting target of Rs 3,000 crore, the airline is expecting to save Rs 600-700 crore in employee-related costs, such as wages. The airline has appointed Booz-Allen as a consultant to advise on cost reduction. It has also appointed NM Rothschild, an international investment banker, to work on a financial restructuring for the company. It has also been decided to appoint six independent directors on the board of Air India, which already has nine members.

In addition, the airline has delayed the delivery of six Boeing 777 aircraft by two years. These were expected to be delivered to the company between 2010 and 2012. It has also floated a tender to lease out seven aircraft and it plans to further lease out about 40 aircraft in 24 months, as it aims for additional revenue.

Air traffic has shown an uptrend in the last month and is showing some signs of a recovery, Patel said.