The government is planning to inject around Rs 1,000 crore as equity into Air-India (A-I) as part of the plan to restructure the ailing national carrier. A significant portion of the investment is expected to be realised from the sale of Hotel Corporation of India, a wholly-owned subsidiary of the airline.
According to official sources, pending the submission of the Kelkar Committee recommendations on A-I, an in-principle decision has been taken to inject Rs 1,000 crore as equity and that if the amount cannot be raised from the sale of HCI, the finance ministry will provide the rest. Bids have been invited from consultants to carry out the sale process.
The Divestment Commission's report on A-I had suggested that Rs 1,000 crore be injected into the airline as equity. A-I had estimated that it would require a revival package of around Rs 2,000 crore.
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According to A-I sources, the carrier requires around Rs 1,100 crore to wipe out its working capital loans on which it has a huge yearly interest burden (interest payments in 1998-99 are expected to be around Rs 110 crore). External borrowings are around Rs 4,000 crore.
A-I had failed to reduce its productivity linked incentives of about Rs 150 crore a year, a high fixed cost on the non operating account, the sources said. The airline managing director had written to all unions seeking a renegotiation on this agreement but could make no headway.
A-I is seeking another Rs 500-600 crore to refurbish its assets and fleet. It is argued that while the carrier can cut operating losses, it cannot wipe out its balance sheet problems. Projected losses in 1998-99 are Rs 341 crore but the operating losses are expected to be less than Rs 180 crore.
A-I's assets are estimated at Rs 17,000-20,000 crore, while the equity base is Rs 154 crore. The debt equity ratio of the carrier is 8:1.
Kelkar, prior to his appointment as finance secretary, had asked the finance ministry to release Rs 500 crore as part of the 1998-99 budget for the carrier. It was argued that failing this the net worth of A-I would drop to zero by 1999-2000.