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Jul 14, 2009 at 01:37pm IST

Govt may offer funding to cash-strapped to AI

New Delhi: 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.

“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 said in Rajya Sabha.

Responding to a Calling Attention Motion on Air India, he said the airlines has adopted various measures to improve its financial position.

AVIATION SECTOR IN TROUBLE: Air India Boeing 777 approaches to land at the IGIA in New Delhi.

These included rescheduling, cancellation of future aircraft delivery, rationalisation of routes, manpower and incentives of employees, Patel 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 31,2009.

For the fiscal 2008-09, it is estimated to have incurred a loss of about Rs 5,000 crore in the global aviation market.

Air India has placed orders for a total of 111 aircraft from Boeing and Airbus for its fleet replacement and expansion programme.

Observing that the national carrier had adopted several measures to improve its financial bottom-line, Patel said decision to reschedule or cancel future aircraft deliveries had also been taken.

It was planning to return its leased planes at the earliest, he said, adding that rationalisation of routes to cut losses on traditionally loss-making ones has been done.

Noting that Air India's equity base was only Rs 145 crore, the Minister said “the Government, in the past, has never assisted Air India unlike governments in other countries that have assisted their airlines in similar difficulty.”

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In the post-merger period, a plan for issuing of an Initial Public Offer (IPO) was mooted “but the market conditions then were not conducive to this process.”

In the past year, the surge in oil prices has adversely impacted the cost of operations of the airline and deteriorated its financial condition further.

Patel said that Air India also suffered high fixed cost and high expenditure on insurance, interest on working capital, aircraft loan and leasing of planes.

All these costs have “not been matched with corresponding percentage increases in revenue,” the Minister added.

Patel said Air India also 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 “non-profitable 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 and Rs 230.97 crore respectively. In 2007-08, the combined airline posted a loss of Rs 2,226 crore 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.

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