Air India to get govt bailout of US$170m
By Damanjeet Kohli, Channel NewsAsia | Posted: 19 November 2009 0032 hrs

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INDIA: Air India had booked a loss of US$1.5 billion in the last fiscal year, and after many appeals by the carrier, the government has agreed to inject cash of US$170 million into the airline in the first quarter of 2010.

However, in order to get more, the flag carrier will have to cut cost and enhance revenue by up to US$430 million by March 2010.

"Air India will have to provide a revenue enhancement and a cost cutting programme to the extent of at least Rs 2,000 crore (nearly US$430 million) by March, which in a way will at least give a direction to the way forward, because until and unless a direction is set, recovery will not be visible," said Praful Patel, Indian Minister of State for Civil Aviation.

This is a challenging target for Air India. The carrier had earlier tried to roll back incentive-linked pay, which makes a major chunk of the salaries for its 31,500 employees.

But a threat of a nationwide strike by pilots has forced the airline to put the plan on the back burner.

The carrier has now raised its domestic fares by nearly US$5, following an increase in jet fuel prices, to shore up revenue. However, there is no indication yet of when it will downsize its fleet of 132 aircraft.

Subhash Goel, chairman, Aviation, Tourism & Hospitality, Indian Chamber of Commerce, said: "The airline is bleeding because they have bitten more than they can chew. They have bought more aircrafts than were necessary.

"A lot of routes are being operated for political reasons or for other considerations. They are not economically viable. So whatever routes are losing money, rather than closing the airlines, you close the routes."

Analysts said the equity infusion is not enough and looks like a stop-gap solution for the cash-strapped carrier.

Air India's working capital liabilities have quadrupled to US$3.5 billion in the last three years. Banks are now wary of giving more loans to this loss-making enterprise.

The only positive sign to look forward to is that the carrier's domestic market share has increased to 18.6 per cent from 16.6 per cent.

Air India has said it hopes to improve its performance with this increased passenger demand. It is also planning to withdraw some loss-making routes to save costs.

Prime Minister Manmohan Singh has said Air India is the country's national pride. Even though the government will stop short of privatizing the airline, it needs to ask itself how far is it justified to keep funding a loss-making enterprise when the money can be utilized for other development projects.

The answer might be clearer in March next year when Air India shows its balance book to the government.

- CNA/sc