Ministry puts IA fleet plan on fast track

Cabinet to take up proposal next week

The civil aviation ministry was expected to forward the fleet expansion proposal of Indian Airlines to the Cabinet Committee on Economic Affairs (CCEA) next week, a senior government official said.

Once the Cabinet approves it, the government is expected to start negotiations with Airbus, which has emerged as the lowest bidder for the fleet acquisition plan of the state-run carrier.

The Cabinet's approval will also be sought for giving the airlines a sovereign guarantee, as well as expanding its equity base by Rs 325 crore from the present Rs 105.19 crore.

According to ministry officials, a high-powered committee is likely to start price negotiations with Airbus. The government believes that there is further scope for negotiations to decide on the final price.

The officials indicated that the Rs 9,475 crore decided on by the Public Investment Board (PIB) was the unnegotiated cost, and negotiations were required on a counter-trade agreement with Airbus as well as on certain conditions in the acquisition plan.

They said, according to the terms of the contract, the company bagging the order would have to undertake counter purchases of around Rs 3,000 crore, or 30 per cent of the total value of the contract, from India.

If a consortium of companies including aircraft makers, aircraft service providers and aircraft engine makers get the project, each party will have to undertake counter-purchases of around 30 per cent of their contract value.

This has been done to ensure that the companies that bag the contract will invest back in India, by setting up their own facilities or giving contracts to Indian companies.

The sources also pointed out that it would not be mandatory for the aircraft maker to source the counter-purchase from a government company or agency.

They may also be allowed to outsource various work to Indian companies or even allowed to set up their own centres for the purpose.

According to the terms of the contract, once the deployment of new aircraft starts, the government will appoint a nodal agency, which will negotiate with the aircraft maker.

"This agency will negotiate with the companies about the terms under which the counter purchase will be made. Besides, modalities about the way it will be undertaken, will also be decided by the nodal agency," the sources said.

Flight path

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• The Cabinet will decide on granting a sovereign guarantee to Indian Airlines
• It will also decide on increasing the carrier's equity base by Rs 325 cr from the present Rs 105.19 cr
• A high-powered committee is likely to renegotiate prices with Airbus