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GoM undecided over fund infusion into Air India

The GoM asked the civil aviation ministry to seek the approval of the Reserve Bank for a plan to restructure Air India's debt.

, ET Bureau|
Updated: Oct 29, 2011, 01.26 AM IST
NEW DELHI: A group of ministers (GoM) headed by Finance Minister Pranab Mukherjee on Friday discussed plans to invest more state funds into Air India but came to no conclusion. The GoM asked the civil aviation ministry to seek the approval of the Reserve Bank for a plan to restructure Air India’s debt.

The ministers discussed a recommendation from a panel of secretaries to infuse Rs 23,000 crore into the national carrier over the next 10 years, out of which Rs 6,600 crore could be invested in the current fiscal ending March 31, 2012.

“Though the meeting was inconclusive, we will go to RBI in a week to get their view on financial restructuring, after which there will be another GoM meet. Thereafter, the cabinet will decide the matter of equity infusion of Rs 6,600 crore,” Civil Aviation Minister Vayalar Ravi said after the meeting.

This equity infusion will be inclusive of the Rs 1,200 crore that the government has already provided this year. Over the last three fiscals, the government has injected Rs 3,200 crore by way of equity into the airline.

Air India is in talks with lenders to convert a portion of shortterm working capital, which comes to Rs 22,165 crore, into long-term loans as part of its financial restructuring plan. Long-term loans, which the airline had used to finance aircraft buys, account for a further Rs 20,000 crore of debt.

Ravi said there was no firm decision on buying the latest generation of Boeing aircraft, the Dreamliner, saying the cabinet will take a call on this too. The GoM may also refer to the cabinet two options regarding the order.

According to sources present in the meeting, two options were discussed: either to get 14 Dreamliners now and defer delivery of others or to get all 27 on sale-and-leaseback model.

Saleand-leaseback model is when an airline purchases aircraft from the manufacturer and sells them to a leasing company and then gets the planes on lease from them. This erases the aircraft purchase debt from the books of the airline and also gets them the asset. The airline had placed an order for 27 Boeing 787s in 2006, as part of a bigger order of 68 Boeing aircraft.

The decision was heavily criticised by the CAG in a recent report. The delivery of the 787s is behind schedule by more than three years due to production problems at Boeing. Ravi had said in September that the airline was incapable of buying 27 aircraft worth nearly Rs 20,000 crore, for which it has signed a contract, while Air India’s board had said that the airline needed these aircraft.

Boeing aims to deliver the first one in December. AI is negotiating compensation for delays in the delivery of the Dreamliner planes, which Boeing officials claim offer a 20% jump in fuel efficiency over other similar planes. Meanwhile, another government official, who was part of the GoM meet, said that out of seven turnaround scenarios for AI which had been considered, the group of officers recommended the one which envisages increasing aircraft occupancy to 73% by 2015 and to 75% by 2020, in comparison with 69.5% at present.

“It is subject to this condition that the group of officers have recommended Rs 23,000-crore equity infusion into the airline to the group of ministers,” the official said on conditions of anonymity. In a major relief to AI, the GoM allowed AI to buy fuel on credit for three more months. The airline, which has a debt of Rs 42,350 crore, had initially asked the government for an equity infusion of Rs 43,000 crore.

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