Ailing Air India (AI) is likely to get an additional equity infusion of Rs1,200 crore with a Group of Ministers (GoM) tonight deciding to bring a proposal on the issue soon.
"The GoM will bring a proposal to release Rs1,200 crore of equity and place it before the Cabinet Committee on Economic Affairs within a short time-frame", Civil Aviation Minister Vayalar Ravi said after a 90-minute meeting of the ministerial group headed by Finance Minister Pranab Mukherjee.
At the first meeting of the GoM, it was also decided to set up a committee to examine the turnaround and financial restructuring plans of Air India and submit its report within six weeks to the GoM for a review, he said.
This committee would also examine the plan to restructure its massive debt of Rs40,000 crore, sources said.
A Committee of Secretaries, headed by Cabinet Secretary A. K. Seth, would be established to look into the financial claims submitted by Air India to the government for carrying out VVIP flights and evacuation of people from various countries in the recent past, Ravi said.
The CoS would have Secretaries of Economic Affairs, Expenditure, Civil Aviation, Financial Services and representatives of the Planning Commission.
The decisions were taken in view of the precarious financial situation of the national carrier and expeditious steps need to save it from a virtual bankruptcy.
Besides Mukherjee and Ravi, the meeting was attended among others by Petroleum Minister S Jaipal Reddy, Planning Commission Deputy Chairman Montek Singh Ahluwalia, Cabinet Secretary A K Seth, Civil Aviation Secretary Nasim Zaidi and Air India CMD Arvind Jadhav.
A cabinet note on operationalising Air India's proposed subsidiaries for ground handling and MRO (Maintenance, Repair and Overhaul) will be circulated within two-weeks, Ravi said.
Once the GoM approves the airline's turnaround and financial restructuring plan, the proposal to infuse further equity would be placed before the CCEA for releasing the third tranche, he said.
The government has already set aside a provision of Rs1,200 crore in the budget for infusing equity in Air India in this financial year. Till now, it has injected Rs1,200 crore and Rs800 crore in two tranches in 2009-10, raising the national carrier's equity base to Rs2,145 crore.
The turnaround plan includes equity infusion, conversion of short-term loans to long-term ones, reduction of interest rates, operationalisation of MRO and Ground Handling subsidiaries and resolving integration and merger issues.
The bankers' consortium, approached by the airline for debt restructuring, had in April supported the turnaround plan with certain conditions. The airline had then set a target for enhancing revenues by Rs5,000 crore and slash costs by Rs4,000 crore per annum as part of this plan.
Air India is saddled with a debt of about Rs40,000 crore, of which Rs18,000 crore are working capital loans taken from a consortium of banks and the remaining amount of loans is towards payment of new aircraft ordered.
SBI Caps and Deloitte were mandated by a consortium of nearly 10 lenders to thrash out a turnaround strategy for the ailing national carrier. The plan has been submitted to the Reserve Bank of India for approval.
In a relief for Air India, state-run oil companies were directed by the government few weeks ago to meet the carrier's requirements for three months to allow it to fully restore its operations.
The airline had been curtailing and combining about 15 per cent of its 320 daily flights for several weeks in the past months due to the shortage in fuel supplies by oil companies like ONGC and Bharat Petroleum.
The airline has so far raised loans worth around Rs14,000 crore to fund aircraft purchases and is currently in the process of raising more money. The working capital loan was mostly extended by state-run banks like SBI, PNB, IDBI Bank and Syndicate Bank.
The working capital debt of Rs21,000 crore was borrowed at an interest rate of 12 per cent. The airline's annual interest payment was Rs1,800 crore on a total accumulated debt of Rs40,000 crore.
The airline has accumulated losses of over Rs15,000 crore. The carrier lost Rs2,226 crore in 2007-08, Rs7,189 crore in 2008-09 and Rs5,551 crore in 2009-10.