No Fund Allocation for Air India

Issue: 4 / 2018

The Ministry of Finance has turned down 300-billion fund-infusion proposal for the national carrier Air India in the absence of a clear turnaround plan. The Ministry of Civil Aviation had sought the package to wipe out the debt obligation of the state-owned airline, defaulting on salary disbursements and payments to vendors. The Ministry of Finance has instead asked the airline to transfer its non-core assets and subsidiaries to a special purpose vehicle (SPV). Those assets would be monetised to reduce the company’s unsustainable portion of the debt. Of the 500 billion total debt, around 220 billion has been termed unsustainable, implying it cannot be serviced with the cash flow income.

Of the overall debt, aircraft loans account for about 160 billion, which has been raised partially from EXIM Bank, foreign institutions and non-convertible debentures, while the rest is from working capital. The Ministry of Civil Aviation is of the view that the airline cannot perform at the optimum level due to the hefty interest outgo and is of the view that small infusion of funds will not help the airline’s turnaround plan as it was paying 40-50 billion annually as interest. The stand of the Ministry of Finance also stems from the fact that in an election year, budgetary resources need to be allocated for funding agriculture and infrastructure rather than for an airline. The government is simultaneously preparing to sell Air India’s engineering and ground-handling subsidiaries, Air India Engineering Services Limited (AIESL) and Air India Air Transport Service Limited (AIATSL).