The government on Thursday took a number of decisions, aimed at pulling out ailing Air India from its financial mess and putting it on the road to profitability.

It announced that it would infuse additional funds into the airline to the tune of Rs. 30,000 crore till 2020, hive off the engineering services and ground handling business, and go ahead with the induction of 27 new Boeing 787 Dreamliners.

Announcing the decisions of the Cabinet Committee on Economic Affairs (CCEA), Civil Aviation Minister Ajit Singh said the CCEA granted approvals while giving its nod to the airline's financial restructuring and turnaround plan which would help the carrier get an upfront equity support of Rs. 6,750 crore to help tide over its dwindling fortunes.

Government guarantee

Addressing a press conference here, Mr. Singh said Air India would get the government guarantee for repayment of principal amount and payment of interest on the non-convertible debentures of Rs. 7400 crore proposed to be issued to financial institutions, banks, the Life Insurance of Corporation and used to repay part of working capital loans.

Mr. Singh said the government has also approved a proposal to make the airline's MRO (Maintenance, Repair and Overhaul) business and its Engineering Services as two wholly-owned subsidiaries. The MRO unit will get Rs. 375 crore over three years and is projected to be a profit-making company from 2017-18. About 7,000 employees of Air India will migrate to the subsidiary company.

The MRO unit will aim at tapping the potential of nearly $1.5 billion in the Asia Pacific region.

The ground handling unit, planned to be developed as a separate profit centre, will get Rs. 393 crore over a span of 12 years. This infusion will be based on equity support received from the government. The new subsidiary, where 12,000 employees will migrate, is projected to make profit from the current financial year itself.

The two wholly owned subsidiaries – MRO and Ground Handling – will thus have about 19,000 of around 28,000 total Air India employees.

Mr. Singh said that Air India has been allowed to issue government- guaranteed non-convertible debentures (NCDs) worth Rs 7,400 crore to its lenders, like financial institutions, banks, LIC and EPFO. These NCDs would be used to repay part of the airline's close to Rs 21,200 crore working capital loans.

The debt-laden carrier has outstanding loans and dues worth Rs 67,520 crore, of which Rs 21,200 crore is working capital loan, Rs 22,000 crore long-term loan on fleet acquisition, Rs 4,600 crore vendor dues besides an accumulated loss of Rs 20,320 crore.

The Minister also announced the CCEA approval to the induction of 27 Boeing 787 Dreamliners and three Boeing 777-300s on sale and leaseback basis. Under this system, one party sells a property to a buyer who immediately leases it back to the seller. This arrangement allows the initial buyer to make full use of the asset while not having capital tied up in the asset.

Answering questions about allowing foreign airlines to invest in Indian carriers including Air India, Mr. Singh said a decision was likely to be taken at the next meeting of the Cabinet.

When asked how long the Government would put tax payers’ money into loss-making Air India, Mr. Singh said: ``Air India will have to fulfil the tasks set out in the turn around plan and meet all the milestones" on a regular basis to get these benefits. Air India will have to be in line with the industry norms. The government will not continue to lose public money like this indefinitely.’’

He said the releases of various tranches of equity would be subject to milestones like pay load factor, on time performance, fleet utilisation, yield factor, rationalisation of various emolument structure of the employees. The Minister said that an oversight committee of the officers would be constituted to monitor and ensure that the milestones were achieved by Air India before the release of tranches.

Attempting to put fears of Air India employees to rest that after FDI in aviation was allowed, the government would no longer control the national carrier, Mr. Singh said that the airline would continue to be owned by the government.