Aviation ministry feels these small infusions won’t help much.
National Aviation Company India Ltd (Nacil), which runs Air India, is likely to receive government approval for its second equity infusion of Rs 1,200 crore by next week.
A senior civil aviation ministry official, who did not want to be identified, said, “The equity infusion will be taken up by the Cabinet in its meeting next week and is likely to be cleared.”
The infusion will increase the base of the airline to Rs 2,145 crore from Rs 945 crore at present. Last financial year, the government had pumped in Rs 800 crore into the carrier. Before that, the airline’s equity base was at Rs 145 crore.
The civil aviation ministry feels these infusions of a relatively smaller amount would not be of much help.
“These infusions will not help the airline. The airline will need an infusion of at least Rs 6,000 crore in one go to come out of the red,” said another senior ministry official, on condition of anonymity.
Air India has accumulated losses of Rs 12,000 crore and is expected to make an operational profit by the end of this financial year.
The airline has huge debts on its books. It has a working capital debt of Rs 18,500 crore and pays Rs 1,800 crore as annual interest at a rate of 12 per cent annually.
This will ease, as the finance ministry is ready to provide AI’s sovereign guarantee to loans availed by Air India. The airline will then be able to reduce its interest rates by up to 150 basis points and save over 30 per cent (Rs 550 crore) on its interest payment annually.
AI has a domestic market share of 18 per cent — lower than competitors like Jet and Kingfisher. The carrier has received 68 aircraft of the 111 it had ordered in 2005. It is not scheduled to receive any plane this year.
The airline is also looking at launching a domestic low-cost carrier under the Air India Express brand to boost its market share. Air India Express is the international low-cost subsidiary of Air India, which flies mainly to West Asian countries. It also flies to a few south-east Asian countries.
