In its bid to speed up a turnaround, Air India would seek the approval of the Union Cabinet to operationalise its six Strategic Business Units (SBUs) when the government considers an equity infusion of Rs. 1,200 crore into the ailing carrier.
The Civil Aviation Ministry, in a note to the Cabinet, is likely to seek approval for operationalising the SBUs relating to low cost airline, cargo, Maintenance, Repair and Overhaul (MRO), grounding handling, engineering and related business so as to enhance the airline’s revenues.
The Cabinet Committee on Economic Affairs may take up the issue later this month when it also considers infusion of Rs. 1,200 crore as equity, sources said. The government had in February infused Rs. 800 crore as equity into the carrier.
The government is looking at equity induction in a phased manner based on the performance parameters of Air India, they said.
In 2007, when the erstwhile Air India and Indian Airlines were merged into the National Aviation Company of India Ltd. (NACIL), it was decided that the six SBUs would act as separate profit centres.
The NACIL, which wants to review all agreements with its 14 unions, is also likely to seek government’s nod to start re-negotiations with the unions, two of which were de-recognised following a flash strike three days after the May 22 plane crash in Mangalore.
At present, there are 10 wage agreements signed between these unions and the management. The employees’ unions say that the airline wage bill was 18 per cent of the total turnover as against a global average of about 22 per cent of total turnover for most international carriers.
The unions have said that the management had assured them that their views would be considered before finalising the company’s turnaround plan, but the two sides are yet to have any concrete discussions on it.
The plan for financial restructuring and turnaround till 2014-15 focuses on Air India achieving a break-even in its operations by 2015.
Under it, the national carrier intends to get working capital loans through a mix of bonds guaranteed by the government with longer tenure and bullet payments. The company could also sell or lease land and building to raise working capital.
In order to beef up revenue generation, the national carrier has decided to appoint a Chief Strategy Officer who would report to Chairman and Managing Director Arvind Jadhav.
The CSO would be responsible for developing and managing the Business Transformation Office (BTO) and ensure that the turnaround strategy is translated into action. The BTO would identify and track strategic initiatives through execution.
According to official estimates, Air India is expected to incur a loss of Rs. 5,656.62 crore in 2009-10. The airline had suffered a loss of Rs. 2,226.16 crore in 2007-08 which rose to Rs. 5,548.26 crore the following year.
