The government is willing to consider a sovereign guarantee to give comfort to lenders of Air India (AI), Civil Aviation Minister Praful Patel said today.
Patel was speaking at a press conference after discussion on the airline’s ‘turnaround plan’, along with the independent directors, the Chairman and Managing Director, Arvind Jadhav and the Chief Operating Officer, Gustav Baldauf.
The turnaround plan is yet to be finalised. Among its highlights, said a statement, would be restructuring of working capital loans, likely to be through a mix of bonds guaranteed by the government, with a longer tenure and bullet payments. The carrier may also raise additional capital by monetising land and buildings, either through outright sale or as security for fresh loans.
Among the measures discussed today were how to reduce the cost of debt; fresh equity infusion by the government of Rs 1,200 crore, depending on the airline’s financial health; a restructuring plan to be prepared by SBI Caps and putting in place a Business Transformation Office.
“The turnaround plan was discussed with all 14 unions, the management and board of Air India and the independent directors. This is not the final plan, but is the first cut upon which basis the final plan shall be chalked out. The turnaround plan is for the period of 2010-2014,” said Patel.
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The minister said the carrier seemed to be on a firm path of recovery, as can be seen from the numbers for this quarter. “The load factors have gone up, revenues are also up by Rs 638 crore, while overall cargo revenues are up by Rs 92 crore, quarter-on-quarter. The yields of the carrier have also gone up by 14 per cent,” said Patel.
Patel said the government was open to pumping in additional equity, if the airline shows substantial recovery, reduction in costs and operational efficiencies.
CMD Arvind Jadhav said, “This turnaround plan has been drafted keeping in mind the growth scenario now. The earlier plans that had been drafted spoke of a turnaround at a time of turbulence and recession in the aviation industry. The new plan, however, looks at a turnaround in a scenario where there is growth.”
The plan would be an amalgamation of the four earlier plans, along with additional recommendations.
“Three business models are being considered,” said Jadhav. “First, a mainline full service carrier, a low-cost carrier across the domestic and international markets, and the feeder routes model. The company is working on these three business models. Once the targets are set, the equipment will have to be put in place and then the structures.”
These are not mutually exclusive models but aspects of a turnaround plan. AI is a full service carrier and also has a low-cost wing, AI Express, which presently operates only in international markets; the idea is to have low-cost carrier operations on domestic routes as part of a changed strategy. So, too, for a plan to feed traffic from smaller cities and towns to major domestic or international routes.
The airline currently has a working capital debt of Rs 18,000 crore that has to be restructured, along with Rs 20,000 crore as the capital expenditure debt. SBI Caps has been appointed to come up with a plan to restructure it. The plan is expected to be presented to the board of directors by mid-August.
“The capex debt can be recovered and there are assets on book for it. But Rs 18,000 crore of working capital debt has to be looked closely,” said Patel.
Anand Mahindra, vice-chairman of Mahindra & Mahindra and one of the four recently-appointed independent directors said, “As a member of the finance committee, I can say that the finances of the carrier need to show traction on performance and turnaround. If this progresses the right way, the government would be willing to infuse additional equity as required. A Business Transformation Office will be put in place, which will be looking at efficiencies and meeting projections.” Amit Mitra, secretary general of Federation of Indian Chambers of Commerce & Industry, industrialist Harsh Neotia and retired Air Chief Marshal Fali H Major are the other three independent directors on Air India board.
The business portfolio is also expected to be restructured. “The carrier will be looking at third-party business opportunities in MRO (maintenance, repair and overhaul), ground handling and business jets. Once that happens, manpower rationalisation will not be a problem,” said Patel.