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Friday 13 April 2012

Lifeline for Air India

Lifeline for Air India

New Delhi, April 12: The cabinet today agreed to hive off the ground handling and engineering services of Air India into two wholly-owned subsidiaries and pump Rs 30,000 crore into the ailing airline by 2020.
However, it has insisted on checks to make sure the money was being used well and that the airline maintained performance standards.
"This is good news for Air India," said civil aviation minister Ajit Singh.
The parameters that the government will monitor include an improved on-time performance from the existing 71 per cent to between 80 per cent and 90 per cent, a reduction in costs and better training.
Officials said of the Rs 30,000 crore approved, the government will infuse Rs 6,750 crore into Air India in this financial year.
The airline has been allowed to issue government-guaranteed non-convertible debentures (NCDs) worth Rs 7,400 crore to its lenders such as financial institutions, banks, LIC and the EPFO. These NCDs would be used to repay part of the airline's close to Rs 21,200 crore working capital loans.
"We seek the co-operation of the employees but let's be very clear that Air India needs to rationalise costs, otherwise the government cannot and will not use public money to run Air India," Singh said.
The hiving off into two subsidiaries had long been planned by the airline as it would create two separate profit centres.
AI's maintenance division — with 7,000 workers, including 1,500 engineers — is considered as one of the best in Asia and has the expertise to maintain and repair the latest Airbus and Boeing aircraft. Plans are to use it to maintain planes from airlines all over Asia.
Similarly, the ground handling subsidiary — Air India Transport Services Limited — with 12,000 workers would provide services to all airlines who require ground handling in India. The move will make Air India a more leaner organisation, with just 9,000 employees involved in the core airline operations.
"Justice Dharmadhikari Committee has also recommended this measure (hiving off two subsidiaries)," said Singh. "Air India will provide the required equity for capital expenditure to the extent of Rs 375 crore over a period of three years. This would be based on equity support received by it from the government. The company is projected to be a profit making one from financial year 2017-18."
However, Air India unions tonight appeared to have reservations about the government's hive-off plan as part of its turnaround strategy.
Seven unions under a joint front comprising pilots, engineers, a ground handling staff and technical staff will meet tomorrow to discuss the plan.
FDI in aviation
The issue of allowing foreign airlines to buy up to a 49 per cent stake in Indian carriers, mostly cash-starved, is likely to come up before the Union cabinet next week. While the ministries of finance and civil aviation have approved the proposal to amend the FDI guidelines for aviation, some other ministries are yet to give their approval.
The commerce ministry had moved a cabinet note a few weeks ago to allow foreign carriers to pick up equity of up to 49 per cent in their Indian counterparts.

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