The Centre on Thursday approved the proposal for release of equity infusion of Rs.800 crore in two equal monthly instalments to National Aviation Company of India Ltd (NACIL), the holding company of Air India.
NACIL is now facing severe financial losses. Costly legacy assets, weakening revenue stream and high cost structure also result in rising liabilities. The equity infusion will help the troubled Air India tide over its cash flow problem and finance fleet acquisition plans.
A meeting of the Cabinet Committee on Economic Affairs, presided over by Prime Minister Manmohan Singh, gave its nod to the fresh equity infusion. “The equity infusion had been approved by the Group of Ministers headed by Finance Minister Pranab Mukherjee. The release of funds will be calibrated to achieving the milestones laid down by the ministerial group,” an official spokesperson said. The company's present paid-up equity capital is Rs.145 crore. This was found grossly insufficient for an aviation company of its size. The fresh equity would preclude borrowing from the markets at a high cost, officials said.
The airline had posted a loss of about Rs.7,200 crore in the last two fiscal years. The equity infusion was approved only after it adopted a turnaround plan. The plan includes cost reduction and revenue enhancement programme, focussing on fleet rationalisation, route profitability, manpower rationalisations and structural changes. Fleet rationalisation is being attempted through reduction of the fleet size from 146 aircraft to 105 by March 2011. NACIL will remove 22 aircraft from the fleet by way of leasing out, return of leased aircraft and sale of aircraft.
Air India has also been asked to take the following steps: rationalise manpower and productivity-linked incentives, fully integrate the erstwhile Indian Airlines with Air India, review all agreements on technical and operational matters, return all leased aircraft at the earliest, re-deploy staff to curb infructuous expenditure, close all overseas offices where Air India does not operate.
