Air India's turnaround plan would be hit by a proposed curtailment in government equity infusion, the airline has informed the civil aviation ministry.
Air India received Rs 1,713 crore of equity in the Budget, against its requirement of Rs 3,900 crore. The airline had requested the remaining Rs 2,200 crore to be released in the supplementary Budget. But the finance ministry has turned down the airline's request.
Lower equity infusion could result in increased finance costs and impact the turnaround plan, the airline has told the government.
Air India is on a Rs 30,000-crore government bailout package and has till now received Rs 23,993 crore in equity, including Rs 1,713-crore investment this year. The infusion fund was to take care of the cash deficit and to be used for loan repayment. The airline was hoping to retire debt using the equity infusion in 2016.
Last week, Air India Chairperson Ashwani Lohani wrote to the civil aviation ministry highlighting the perils of reduced equity infusion. The airline has sought the ministry's intervention in the regard. Lohani confirmed to Business Standard he has written to the ministry. "Air India's huge debt burden is a legacy of the past. It would be impossible to manage unless we are given full equity," he said in response to a query.
Lohani has in his letter pointed out that the airline was on an expansion mode and leasing aircraft, making it essential to have sufficient liquidity to take care of commitments. Further, he said, the airline would be forced to raise temporary loans from banks to bridge the liquidity gap, which might endanger the survival of the company.
A civil aviation ministry official said minister Ashok Gajapathi Raju has apprised the finance ministry about the matter but there was very little chance that the airline will get supplementary Budget support this financial year. "It's an early Budget next year. The finance ministry has assured that budgetary requirement of the airline will be taken care of next year. Air India will not suffer from lack of government support," the ministry official said.
Air India has debt of Rs46,000 crore and has annual interest outgo of around Rs4,000 crore. The challenge before the Air India management is reducing debt. High interest and maintenance expenses have resulted in the airline posting a net loss of Rs3,837 crore in FY16.
The airline was looking at ways to reduce the debt and was discussing restructuring debt worth Rs10,000 crore under the scheme for sustainable restructuring of bad assets floated by the Reserve Bank of India.
Simultaneously, sources said the airline was in talks with Life Insurance Corporation for a loan of Rs10,000 crore for acquisition of aircraft.
Air India posted an operating profit of Rs105 crore in FY2015-16. This was the carrier's first operating profit in a decade. It is expecting to post better results in FY2017. Buoyed by the improvements, it has revised its net profit target to FY2019-20, two years ahead of schedule. The government's move would put all these targets at risk.