The government on Thursday approved an Rs 800-crore equity infusion into the ailing Air India. According to the proposal cleared by the Cabinet Committee on Economic Affairs (CCEA),the equity infusion would happen in two equal monthly instalments,and will be linked to the cost-saving milestones achieved by the state carrier.
Air India,on its part,has agreed to a cost reduction plan of Rs 1,911 crore through fleet reduction and route rationalisation in the current financial year. The carrier had earlier set a target of slashing costs by Rs 2,000 crore by March this year. However,it has only managed to save between Rs 700-800 crore so far. The biggest challenge before Air India is how to rationalise its manpower. CMD Arvind Jadhav recently said,Rationalising manpower is a process and will take time. The airline has 31,000 employees,whereas its private sector competitors like Jet Airways and Kingfisher,which are almost of the same size in terms of fleet strength and network,have nearly 13,000 employees.
In September last year,Jadhav had proposed a PLI-cut for its executive level employees,but had to revoke it on opposition from the staff. NACIL is currently facing severe financial losses which are compounded by its costly legacy assets,weakening revenue stream and high cost structure,resulting in rising liabilities, a government statement said. The airline has accumulated losses of Rs 7,200 crore and has a debt of Rs 16,000 crore on its books.
Air India has proposed to save around Rs 900 crore by reducing its fleet size from 146 aircraft to 105 by March 2011. While route rationalisation is expected to bring in savings of around Rs 563 crore,another Rs 113 crore will be saved through manpower rationalisation. The recapitalisation of the airline is a step in the right direction. However,the airline will need more funds and a much more dedicated effort from the management to truly emerge out of the crisis, said Kapil Kaul,CEO of Centre for Asia Pacific Aviation.