Air India in talks with govt on turnaround

Faced with a Rs 60,000 crore debt, Air India is in talks with the govt for equity infusion and a soft loan even as it began a major cost-cutting exercise, which includes the launch of a low-cost domestic service this September.

Aiming at a turnaround in the next 2-3 years with initiatives like starting Special Business Units in areas like maintenance, repair and overhaul, cargo and groundhandling, AI CMD Arvind Jadhav said the company was negotiating with banks and financial institutions to turn its high-cost debt of Rs 10,000-11,000 crore into low-cost.

However, the banks want the national carrier to get a comfort letter or a sovereign guarantee from the government to convert the high-cost debt into low-interest loans, he said.

“We have never written to the government for a bailout package … we have never talked of waiver of ATF charges, waiver of taxes, waiver of penalties,” he told reporters at New Delhi on Friday.

“The airline had made a presentation to the government on the need for equity infusion and soft loan and the government is carrying out a financial analysis,” Jadhav said.

Air India Express, the national carrier’s low cost entity, will commence domestic operations from September with 27 percent of Air India’s existing routes that were not profitable, he said, adding ten additional aircraft would be deployed for this purpose.

Noting that current market pressures would continue over the next two-three years, Jadhav said AI would start preparing for an initial public offering in 2010-11 as well as additional fund offering in the next fiscal.

He said the national carrier was estimating an earning of Rs 180-200 crore through its low-cost operations on the domestic sector, which would “improve our bottomline”.

Air India would gradually shift 70-75 percent of its existing domestic operations to Air India Express, he said.

The airline will focus on high-density domestic and international routes and operate an “aggressive” route restructuring to provide seamless connectivity, he said.

A cost management and audit team has been set up to look at AI’s overall financial restructuring, including debt servicing, risk management, hedging and other related issues.

To questions on manpower rationalisation, he said the creation of SBUs relating to engineering, MRO and ground handling would lead to almost two-thirds of the 32,000 staff going out of airline operations, thus lowering the aircraft-to-employee ratio to match global standards.

Giving examples of Lufthansa and Singapore Airlines, Jadhav said the ground-handling subsidiaries accounted for almost 40 percent of revenue of the parent company, whereas “we currently earn only two per cent”

On AI joining the Star Alliance, he said a single code for the two erstwhile airlines — Air India (AI) and Indian Airlines (IC) — would be put in place by next March. Internet engines will also be upgraded and integrated with the Star Alliance system.

Jadhav said in the past two decades, the company had acquired 41 aircraft worth USD three billion, entirely financed through internal resources and not by taxpayers’ money.

He said several global carriers like British Airways, Japan Airlines, and China Southern had received financial support from their respective governments but Air India had not.

The erstwhile Air India and Indian Airlines had together contributed over Rs 4,500 crore by way of dividend, tax and duties.

In the recovery roadmap, the AI chief said employees’ participation in the process was absolutely essential, and the unions had been made part of the Turnaround Committee, which would monitor the progress over the next three years.

This committee will deal with nine areas including route rationalisation, manpower rationalisation, operations and financial restructuring.

“We are officially involving all the employees associations in the roadmap to recovery.”

Observing that several world airlines had retrenched staff to meet losses, Jadhav said “we are not issuing pink slips. We are trying to reduce costs” and added that some agreements with the unions were not within the parameters of the Department of Public Enterprises guidelines and therefore needed a review.

The unions were being consulted on all these issues, he added.

The airline, which is estimated to suffer a loss of Rs 7,200 crore in 2008-09, has been overburdened by its high cost working capital borrowings worth Rs 16,000 crore. It has overdrafts from 15 banks.

A high-level Committee of Secretaries headed by Cabinet Secretary K M Chandrasekhar is vetting the ailing carrier’s plans to cut cost and generate revenue. It would be holding its second review meeting at the end of this month.

Category: Business