Thursday, Oct 02, 2014

Air India to raise Rs 10,000 cr via tax free bonds; undertakes cost cutting, targets IndiGo, SpiceJet, GoAir

Mumbai | Posted: May 6, 2014 6:36 pm

By Rhik Kundu

State-owned Air India plans to raise about Rs 10,000 crore by issuing tax free bonds, during FY 2015, to retire its high cost working capital debt, a senior official of the airline told FE on Tuesday.

The proposal, which is subject to the approval of the Finance Ministry, is likely to materialise once the new government assumes office, the official said.

The national carrier currently has a total debt of about Rs 44,000 crore, consisting of aircraft related debt of Rs 22,000 crore and long term working capital debt of Rs 18,000 crore.

The proposal by the airline to raise a tax free bond is a part of Ministry of Civil Aviation backed Prof. RH Dholakia Committee’s recommendation,  which was set up in 2012 to recommend initiatives to cut costs and increase revenue of the airline.

The finance ministry had earlier rejected similar proposal by the national carrier’s proposal to raise  tax-free bonds on the grounds that such issues were permitted only for infrastructure companies.

However, the airline is confident that the finance ministry will give it a green signal after a new government assumes office, as floating the bond is necessary for the ailing carrier, struggling with huge debt.

“Raising the tax free bond is currently  the top priority for us, as it will help us to retire the airline’s high cost working capital debt,” the senior Air India official said.

Air India’s board of directors recently conducted a review on  several cost cutting measures initiated by the Management, which were a part of  the implementation of Prof RH Dholakia Committee’s recommendation.

“The Committee had provided 22 recommendations at various levels to bring down costs and increase revenue which implemented would result in a saving of Rs 3,200 crore,” the official said.

These recommendations include strong accountability at various levels in the management, charging for food on certain sectors, shifting of Ground Handling and MRO business to its subsidiary companies, enforcement of excess baggage charges, curtailing the loss making routes, cutting down Staff on Duty movements of crew to minimum and temporary posting of employees, removal of unjustified allowances and implementation of DPE pay scales, closing down of offline stations, banning encashment of Paid Leave and Special Leave,  and upgrading passengers to higher class.

While most of these recommendations have been implemented, those remaining are set to be executed in the coming months.

The government enterprise is also gearing up to take on competition, especially low cost carriers (LCCs) like IndiGo, SpiceJet and GoAir, which have in the past few years eaten into the market share of full service carriers like Air India and Jet Airways.

“The Management has taken a number of initiatives in implementing most of these measures including  the reconfiguration of A 321 (Airbus) aircraft to reduce Business Class seats from 20 to 12 and increase the Economy seating to bring about a hybrid model to thwart competition from LCCs. Four of the A 320 and 6 A 321 have already reconfigured resulting in enhanced capacity,” the senior AI official said. As a part of the continued…

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