August 10, 2018 TnH Global 1

Centre working on new turnaround plan for Air India

The government will also let all airlines raise external commercial borrowing for working capital purposes, says civil aviation secretary R.N. Choubey.

The government is working on a new turnaround plan for Air India Ltd (AI) and to permit domestic airlines to raise external commercial borrowings for working capital purposes, civil aviation secretary R.N. Choubey said on Thursday.

The plan will include infusing capital, adding new planes and more operational autonomy for Air India’s board, considered a key hurdle for the state-run carrier in competing with private players.

“We would like to make sure that Air India as a state-owned enterprise remains competitive and its market share does not go down, which may require capacity induction,” Choubey said. “We will also ensure that sufficient delegation (of power) is given to the board of directors to decide on operational matters,” Choubey said.

He declined to give details on the extent of capital infusion. “Discussions are going on with the finance ministry,” he said. Making AI competitive to survive on its own has become an imperative as the government cannot indefinitely spend taxpayer funds to run the carrier when it requires financial resources for massive welfare plans such as health insurance for the poor and support price for winter crops announced in this year’s federal budget. Mint reported on Wednesday that federal policy think tank NITI Aayog favoured turning around the carrier before it is privatised so that the asset fetches better value.

Air India recently failed to attract investor interest when the government put it up for privatisation as part of its strategy to sell state-owned loss-making enterprises. Higher jet fuel prices and the government’s plan to retain a 24% stake post disinvestment damped investor enthusiasm.

AI has a 12.3% share of the domestic air travel market, falling from about 30% in 2002. The airline and its low-cost international carrier Air India Express have 42.8% share of the international traffic to and from India among Indian carriers.

Meanwhile, Choubey said airlines are currently allowed to raise external commercial borrowings for non-working capital purposes and the civil aviation ministry is keen that the scope is expanded. The proposal to allow more options to airlines for raising working capital is expected to ease their financial stress.

Domestic airlines are reeling under high jet fuel price and intense competition which makes it difficult for them to raise flight ticket prices without losing market share. Competition as well as penetration of air travel is set to go up with private players set for a record induction of planes over the next two years.

The government is working on adding infrastructure to make air travel more accessible and to achieve its target of one billion trips a year in 15-20 years, nearly four times the 265 million recorded in 2016-17. Choubey said decisions on both the proposals will be taken in consultation with the finance ministry.