Air India to defer aircraft delivery, govt aid on cards

Government is contemplating capital infusion by way of equity and soft loans for the cash-strapped Air India which has deferred the future aircraft delivery in the backdrop of mounting losses of Rs 7,200 crore (Rs 72 billion).

". . .An equity infusion and soft loan by the government as a measure of softening the adverse financial situation (of Air India) is contemplated," civil aviation minister Praful Patel told the Rajya Sabha.

Responding to a calling attention motion on Air India, he said the airlines has adopted various measures to improve its financial position.

These included rescheduling/cancellation of future aircraft delivery, rationalisation of routes, manpower and incentives of employees, he said.

The airlines, which was forced to defer payment of June salary to majority of its staff, has piled up a loss of Rs 7,200 crore as on March 31. For the fiscal 2008-09, it is estimated to have incurred a loss of about Rs 5,000 crore (Rs 50 billion) in a difficult global aviation market.

Noting that Air India's equity base was only Rs 145 crore (Rs 1.45 billion), Patel said with this equity base, it had placed orders for 111 aircraft from Boeing and Airbus worth over $11 billion.

"The government, in the past, has never assisted Air India unlike governments in other countries that have assisted their airlines in similar difficulty," the minister said.

Taking on the BJP for its criticism of United Progressive Alliance policies towards the airline, Patel said during the NDA rule, a public tender was issued to sell off Air India. It was withdrawn only when the lone bidder -- Tata-Singapore Airline consortium -- pulled out of the race.

He said the UPA government had mooted the idea of issuing an Initial Public Offer (IPO) after the merger of the airline, 'but the market conditions then were not conducive to this process.'

On corruption charges levelled by some members, a few whom also demanding a parliamentary probe, Patel said, "We want to give highest priority to transparency. We would be willing for any level of probe."

Referring to the steps being taken to strengthen the national carrier, he said government wanted to bring more transparency in the working and give it more autonomy.

Patel said Air India incurred 'huge cost' for operating non-economic flights in national interest that have 'not been compensated by adequate revenue'.

These included flights to the Northeast, Andaman and Nicobar Islands, transportation of army troops and Haj pilgrims, disaster relief and other 'unprofitable but necessary operations'.

Referring to the airline's losses, the minister said these have been mounting because of the economic recession which has lowered seat occupation factors 'tremendously' and forced all airlines the world over to drop fares in a highly competitive market.

This has lowered yields causing all airlines to suffer operating losses, he said.

"Losses of Air India reflects a common economic problem of all airlines worldwide," Patel said.

Before their merger, Air India and Indian Airlines had incurred losses of Rs 541.30 crore (Rs 5.41 billion) and Rs 230.97 crore (Rs 2.3 billion) respectively. In 2007-08, the combined airline posted a loss of Rs 2,226 crore (Rs 22.26 billion) and during 2008-09, the expected loss was Rs 5,000 crore.

"The accumulated losses of National Aviation Company of India Limited as on March 31, 2009, is likely to be in the range of Rs 7,200 crore," Patel said.

The cost-cutting and savings enhancement measures taken by the airline included 'a complete rationalisation of manpower and productivity linked incentives, including large scale redeployment of staff to curb infructuous expenditure' and reduction in contractual employment, Patel said.

He said all agreements on all technical and operational matters were being reviewed so as to align these to reflect the present market conditions.

A turnaround committee, comprising representatives of senior management and the unions, has been set up to look at all areas of cost reduction, including closure of all offline offices and reduction of employees at foreign stations, Patel said.