National carrier Air India, reeling under a financial crisis with little funds for fleet expansion, will now get additional equity of Rs.1,200 crore ($250 million) from the government.
The federal cabinet, in a meeting presided over by Prime Minister Manmohan Singh here Thursday, approved the funding for the turnaround plan of National Aviation Co of India – the entity that runs Air India.
The proposal, based on inputs from the national carrier, was put up by Civil Aviation Minister Praful Patel.
“The Cabinet Committee on Economic Affairs approved the infusion of Rs.1,200 crore as equity in the Air India Limited and directed Air India management to work towards rationalisation of wage structure,” civil aviation ministry said in a statement.
“The infusion of enhanced equity fund would give much needed impetus to the Air India for its revival plan.”
The airline, which is running under heavy losses, received Rs.800 crore ($178 million) government support in February this year.
“The government’s decision in approving Rs.1,200 crore as equity will help Air India to operationalise its financial restructuring plan and also gives the signal to the financial markets and would help in confidence building measures,” said the carrier’s chairman Arvind Jadhav.
Jadhav said the airline would start process of discussions with unions in 90 days.
“Being Central Public Sector enterprise, government support in HR issues is vital. Government support on wage and wage related issues will enable the management to initiate discussions with the unions/associations on a wide range of issues,” he said.
Earlier Air India had reported a decrease in its net loss for the fiscal 2009-2010, which stood at Rs.5,551 crore as against a net loss of Rs.7,189 crore in the fiscal 2008-2009.
The airline proposed an infusion of Rs.10,000 crore which was examined by a committee of secretaries, led by Cabinet Secretary K.M. Chandrasekhar.
The committee then decided to provide Rs.2,000 crore to the airline. Apart from the current infusion of Rs.1,200 crore, the airline has already received another Rs.800 crore in February.
According to the airline, the results were muted due to increase in depreciation cost by Rs.164 crore and interest, and financing charges of Rs.769 crore, which was an increase of 46 percent, on induction of more aircraft.
The total expenditure also decreased by 8 percent and stood at Rs.19,035 crore as compared to Rs.20,668 crore in the last fiscal.
The company added that it has recorded an improved operating performance with a nine percent increase in passenger load factor at 64.8 percent from 59.5 percent.
Highlights of the cabinet decision:
– Rs.1200 crore ($250 million) equity infusion from the government
– Asked to rationalisation of wage structure
– Equity infusion aimed to revive the ailing airline
– The government released Rs.800 crore ($178 million) fund for revival of the airline
The national carrier plans to purchase 27 aircrafts, including 21 Airbus A-320 and six Boeing 777.
