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Last Updated : Jan 31, 2019 01:43 PM IST | Source: Moneycontrol.com

Government backing Air India to avoid a Jet-like scenario

"Under the airline's revival strategy, we have asked for their business plan," a senior official of ministry of Civil Aviation told Moneycontrol.

Nikita Vashisht @nikita_vashisht

Nikita Vashisht 

Moneycontrol News 

In their bid to ensure Air India’s survival, the ministry of Civil Aviation has asked the debt-laden carrier to present its business model to the government in order to keep a hawk's eye on its revenue and expenses. 

According to a senior government official, the business plan of the airline is constantly being "monitored".

"Under the airline's revival strategy, we have asked for their business plan," a senior official of ministry of Civil Aviation told Moneycontrol.

He said that the airline was doing "pretty well" with a revenue growth of 20 percent YoY for the period ending December 2018.

"With a reduced fleet and better passenger count, the airline has recorded a revenue growth of 20 percent," the official said on condition of anonymity.

Air India's passenger revenue increased from Rs 4,615 crore in Q3FY18 to Rs 5,538 crore in Q3FY19. While the passenger growth, in absolute terms, was four percent (from 53.28 lakh to 55.27 lakh), the revenue growth was five folds.

The official said that the government was constantly monitoring the airline and it is unlikely to walk the path created by Jet Airways or Kingfisher Airlines.

"We are constantly monitoring it and it is doing reasonably better," he said.

Jet Airways is the latest entrant in the league of loss making airlines that are facing huge debt. It has a debt of over Rs 8,000 crore and is considering various revival strategies including reducing its owner and promoter, Naresh Goyal's, controlling stake to below 20 percent, converting the loan amount to equity and giving state lender State Bank of India (SBI) a stake in the airline and letting the minority stake holder, Etihad airways, raise its stake above 40 percent coupled with infusion of fresh capital in the airline.

Kingfisher had also fallen prey to mounting losses and debt. Its owner Vijay Mallya owes over Rs 9,000 crore to a consortium of lenders.

The scale of Air India's decade long debt, however, is much more at Rs 55,000 crore. The government, now, has transferred half of its debt to a special purpose vehicle (SPV) which will sell the state carrier's non-core business arms to generate funds. This will enable the airline to service its debt.

The difference, however, between other airlines and Air India is that the national carrier is backed by sovereign guarantee by the government, which is constantly pumping in money in the airline.

Another government official told Moneycontrol that the government will provide funds to Air India "subject to its efficiency parameters".

"If the airline is generating enough funds, then the financial advisors do not advice the government to infuse equity," he said.

He said that the airline must work efficiently in order to "enjoy" the government's financial support.

The government has decided to infuse Rs 2,345 crore equity in the airline in the remaining part of FY19, of which Rs 1,500 crore is expected to be infused soon. Till December, AI had received funds infusion of Rs 1,600 crore from the government.

The government had tried to sell its stake of 76 percent in the airline as part of its divestment strategy in May 2018. The proposal from the government, however, saw no bidders due to its huge debt and the government's decision to sell the airline as a single entity.

Officials, now, believe that the "momentum" around Air India's stake sale has picked up and the new government should be able to off-load the stake.
First Published on Jan 30, 2019 09:11 pm
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