Tuesday, March 23, 2010

Air India may lose 'national carrier' tag

The Union Cabinet is set to meet soon to decide if beleaguered state-owned carrier Air India should retain its 'national' character at all. It will also debate if strategic disinvestment is the best way forward for the airline, which is estimated to have accumulated Rs 7,200 crore in losses in 2009-10. With most of Air India's woes emanating from its international operations - where it loses around Rs 3,000 crore a year on 30 routes - a group of ministers (GoM), chaired by finance minister Pranab Mukherjee, has recommended that the airline stop flying to these routes. "This will change the character of Air India," this would turn Air India into a regional airline. The civil aviation ministry is preparing a detailed note for the Cabinet on the carrier's financial health and turnaround measures recommended by the GoM. "Cutting down loss-making international routes will have serious implications. Basically, the government has to decide if Air India continues to fly abroad or within India alone". At the same time, the Cabinet may also debate the issue of strategic disinvestment as a long-term viable option for the carrier. "The government cannot pump money into the National Aviation Company of India Ltd (Nacil) forever". But, it is likely that the Cabinet refers back some of these issues to the GoM for its detailed and considered. A major blow to Nacil's finances comes from prestigious but loss-making daily non-stop flights to New York from Delhi and Mumbai on the latest long-range fleet of Boeing, accounting for losses to the tune of Rs 750 crore a year. The GoM, set up to monitor Air India's turnaround plan, was also to decide on the politically sensitive matter of wage cuts of Air India's 31,000 employees. But it has now left the decision for the Cabinet. To avail government bailout, the carrier was asked to undertake cost-cutting measures that would help it save around Rs 2,000 crore by March 2010. Air India was able to cut costs to the tune of Rs 700-800 crore till December last year. As part of its turnaround strategy, the carrier has shortlisted five candidates for the post of chief commercial.

The carrier recently received a shot in the arm with the government releasing Rs 400 crore as a first tranche towards equity infusion. Air India had asked for Rs 5,000 crore as equity infusion and a letter of comfort from the government to convert its high-cost debt into low-cost ones.

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