Govt enhances expenditure provision for Air India's VVIP aircraft

The government on Wednesday approved a proposal to enhance the expenditure provision for operation and maintenance of cash-strapped Air India's VVIP aircraft by nearly Rs 2 billion from Rs 3.36 billion.

Air India engages the 'Special Extra Section Flights' (SESF) or VVIP aircraft such as the Boeing B747-400 for the President, the Vice President and the Prime Minister.

The proposal was approved by the Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi to help ease some of the financial burden of the airline facing "serious" financial and liquidity position, an official statement said.

"The CCEA has given its approval to enhance the expenditure for 'Special Extra Section Flights' (SESF) operations from Rs 3.36 billion plus applicable taxes to Rs 5.34 billion plus applicable taxes for 2016-17 with built-in annual escalation of 10 per cent to compensate the cost of living index and exchange fluctuation for the maintenance of B747-400 aircraft," the statement said.

The annual maintenance cost of Rs 3.36 billion was last fixed in 2011 by the CCEA for the aircraft maintenance.

Since then, there has been a substantial increase in the expenditure incurred by Air India on maintenance of these aircraft because of increase in the cost of living index, depreciation of the rupee against the US dollar and increase in the material cost, the statement said.

"It is therefore necessary to review the estimates/ reimbursements provided to Air India since the year 2011-12 as the cost base has not been indexed to inflation. Since, Al is suffering financial losses, the airline cannot afford to provide any services below its cost," the statement said.

The costs of these flights are reimbursed to the airline by the respective ministries.

The CCEA's decision comes against the backdrop of the government putting brakes on Air India's disinvestment, for now, after it failed to attract bidders in the initial round of the bidding process.

The airline is incurring a loss of Rs 150 million per day. At the end of March 2017, the carrier had a debt burden of around INR 488.77 billion. Out of the total amount, INR 173.6 billion was related to aircraft and INR 315.17 billion pertained to working capital loans.