New Delhi, April 12 (IANS) Beleaguered flag carrier Air India has got a new lease of life as the government Thursday approved plans for a turnaround in its fortunes with a rehaul in financial and operational efficiency.
"The cabinet committee on economic affairs (CCEA) today (Thursday) approved the turnaround (TAP) and financial restructuring plans (FRP) for Air India. The company will start making cash profits from 2018, but net profit which is the actual profit will take some more time," Civil Aviation Minister Ajit Singh told reporters here.
The comprehensive TAP involves an operational aspect along with a FRP to help Air India improve its functional and financial position which includes hiving off maintenance, repair and overhaul (MRO) and ground handling (GH) businesses as subsidiaries of Air India and other measures.
"The government has also approved the proposal to hive off maintenance, repair and overhaul (MRO) and Ground Handling (GH) business as new profit making subsidiaries of Air India," said Singh.
He said the two new subsidiaries will be Air India Engineering Services, which will look after the MRO business, and Air India Transport Services, which will look after the GH business. The two will try and tap the market potential in their respective fields.
The minister said the national carrier will provide both the subsidiaries with required equity for capital expenditure.
The Air India Engineering Services will get about Rs.375 crore over a period of three years and is expected to make profits from 2017-18.
Air India Transport Services will get equity infusion of Rs.393 crore over a span of 12 years and will start making profits from the current financial year.
The move is expected to help relieve Air India of 19,000 employees who will then join the new subsidiaries from a combined strength of around 28,000 employees.
The board of Air India had already approved the plans which also received a nod from the Group of Ministers (GoM) led by Finance Minister Pranab Mukherjee after which a consortium of lenders gave the goahead to the airline's debt reconstruction plan.
Air India had borrowed some Rs.21,412 crore towards acquisition of new aircraft, another Rs.22,368 crore towards working capital and owes around Rs.2,000 crore to oil retailers, besides facing accumulated losses worth Rs.22,000 crore.
"Short-term working capital loans of Rs.11,000 crore will be converted into long-term loan. There will be an upfront equity support of Rs.6,750 crore including Rs.4,000 crore given in the budget," Singh said.
"The government has also allowed the airline to issue non-convertible debentures of Rs.7,400 crore to repay some of the loans."
The financial restructuring had involved Rs.18,000 crore by a consortium of 19 banks led by the State Bank of India under which Rs.11,00 crore will be converted into long-term debt with a repayment period of 10-15 years.
The remaining Rs.7,400 crore will be repaid through government-guaranteed bonds. Earlier, the government had announced an infusion of Rs.4,000 crore during the current fiscal to increase the airline's equity base to Rs.7,345 crore.
"These measures will help in saving interest cost of around Rs.1,000 crore and help recapitalise Air India. The government will also give guarantees for repayment of principal amount and payment of interest on the debentures."Other measures in the TAP and FRP which were prepared by Air India management in consultation with SBI's advisory arm SBI Caps and vetted by consultancy firm Deloitte includes equity for cash deficit support of Rs.4,552 crore till fiscal 2021, equity for already guaranteed aircraft loan of Rs.18,929 crore till fiscal 2021.
Air India will also for the first time induct new aircraft like Boeing 787 and 777-300ER on sale and lease back basis.
Singh added that the government will not infinitely support Air India with tax payers money if it does not performs as per the TAP.
"We will also monitor the performance of the airline... there are set parameters that will be seen and only then trenches of equity will be released.... we can not go on and on supporting Air India with tax payers money."
For monitoring purpose, a committee will be constituted to ensure that the airline is performing as per the TAP and the FRP.
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