Air India grappling with unsustainable debt, legacy issues: Prabhu

As the government works on ways to turnaround Air India, Civil Aviation Minister Suresh Prabhu has said that the national carrier has "unsustainable debt" and legacy issues need to be dealt with.

Loss-making Air India is estimated to have a debt burden of more than Rs 480 billion and the government's efforts for strategic disinvestment of the carrier failed in May.

"Air India is very clearly a legacy issue. Air India's debt is unsustainable. Forget Air India, nobody can handle that debt. For any airline to service that debt is not possible," Prabhu told PTI in an interview.

The best way is to look at how to deal with the legacy issue, he added.

Air India has been making losses since the merger with Indian Airlines in 2007.

As per its audited accounts, the airline's accumulative losses stood at Rs 471.45 billion in financial year 2016-17.

High interest burden, increase in competition, high airport user charges, adverse impact of exchange rate variation and liberalised bilaterals to foreign carriers leading to excess capacity in the market are among the major reasons for the losses, according to the Civil Aviation Ministry.

A revival strategy is now being worked out as the government aims to make the airline "competitive" before making a fresh push for disinvestment.

On Tuesday, a senior Finance Ministry official said the government was looking at transferring Air India's non-core assets and "unsustainable debt" to a special purpose vehicle as part of measures to revive the national carrier.

The airline is staying afloat on a bailout package extended by the previous UPA regime in 2012.

In the current financial year, the airline has received an equity infusion of Rs 6.5 billion up to June. A Turnaround Plan (TAP) and a Financial Restructuring Plan (FRP) were approved for Air India in 2012.

Last month, the government sought Parliament's nod for Rs 9.8 billion as supplementary grants for equity infusion into the airline.

Earlier this month, the ministry told the Rajya Sabha that the government remains committed to the disinvestment of Air India but has no plan to exit the national carrier altogether.

About the situation of domestic carriers, Prabhu said that whenever the fuel prices go up, the airlines get badly affected because it is a variable cost and cannot be absorbed into business model immediately.

"Now, we will have to work on it. Not only India but globally. Some of the global airlines are facing serious problems," he said during the interview.