Air India gets Rs 800 crore equity shot

The Cabinet, on Thursday, gave its nod for release of Rs 800 crore as equity support for the ailing Nacil, but airline industry veterans termed this infusion “little too late”.

Also, a question mark hangs over how this money will be used; will it be used to pay off the airline’s outstandings against vendors or deployed to raise more debt?

According to official sources, Nacil’s outstandings to vendors are about Rs 2,600 crore and another Rs 2,500 crore is the annual interest payout. The airline is already under a debt of Rs 5,600 crore, so the infusion of a mere Rs 800 crore is hardly likely to help
matters.

In the official statement after the Cabinet decision, the Ministry of Civil Aviation has also highlighted severe financial losses of Nacil, being compounded by its costly legacy assets, weakening revenue stream and high cost structure.

Sources said with Rs 800 crore additional equity to the current equity of a mere Rs 145 crore, the airline can raise debt to the tune of Rs 2,000 crore and together with various other cost and revenue measures, operations could possibly continue for a few more months.

But sources say long-term survival of the national carrier appears
uncertain, unless there is more clarity on both, Nacil’s measures to cut losses and the amount of money the government is ready to pump in to save the airline.

Despite various attempts at financial restructuring, Nacil has been able to reduce its monthly cash loss to only Rs 350 crore from the previous Rs 400 crore, where it needs to halve the cash loss to be able to take further burden off its balance sheet.

The statement mentioned fleet and manpower rationalisation and other structural changes that Nacil is implementing. The aim is to reduce fleet size from 146 to 105 aircraft by March, 2011-22.
Aircraft are being removed from the fleet by way of leasing out, return of leased aircraft and sale of aircraft.  This alone will result in annual cost savings of Rs 900 crore.

The statement also noted improvements in Nacil’s operational
and financial parameters during the first half of 2009-10, wherein the passenger load factor was up from 57.7% to 62% and operating loss of Rs 2,029 crore was about 23% less as compared with Rs 2,638 crore.