Cabinet Committee on Economic Affairs approved Rs 30000 crore Bailout for Air India

The Union government on 12 April 2012 approved Rs 30000 crore bailout for Air India. It was decided that Rs 6750 crore would be infused immediately to meet the airline's working capital requirement and the total of bailout amount would be spread out over a period of 9 years. The Rs 30000 crore bailout package was approved in addition to the equity infusion of Rs 3200 crore already in place.

The government also decided on other issues with an objective of pulling out ailing Air India from its debt burden and enabling it to turn into a profit making venture.

The decisions of the Cabinet Committee on Economic Affairs (CCEA) decided to hive off the engineering services and ground handling business, and go ahead with the induction of 27 new Boeing 787 Dreamliners.

The domestic carrier will get the government guarantee for repayment of principal amount and payment of interest on the non-convertible debentures of Rs. 7400 crore proposed to be issued to financial institutions, banks, the Life Insurance of Corporation and used to repay part of working capital loans.

The proposal to make the airline's MRO (Maintenance, Repair and Overhaul) business and its Engineering Services as two wholly-owned subsidiaries was also approved. The MRO unit is to get Rs. 375 crore over three years and is projected to be a profit-making company from 2017-18. The MRO unit will aim at tapping the potential of nearly $1.5 billion in the Asia Pacific region. About 7000 employees of Air India will migrate to the subsidiary company.

The ground handling unit, planned to be developed as a separate profit centre is to get Rs. 393 crore over a span of 12 years. The infusion will be based on equity support received from the government. 12000 employees will migrate to Ground Handling.
The two wholly owned subsidiaries – MRO and Ground Handling – will thus have about 19000 of around 28000 total Air India employees.

Air India was permitted to issue government- guaranteed non-convertible debentures (NCDs) worth Rs 7400 crore to its lenders, like financial institutions, banks, LIC and EPFO. The NCDs are to be used to repay part of the airline’s close to Rs 21200 crore working capital loans.

The CCEA also approved of the induction of 27 Boeing 787 Dreamliners and three Boeing 777-300s on sale and leaseback basis. Under this system, one party sells a property to a buyer who immediately leases it back to the seller. The initial buyer can in this way make full use of the asset while not having capital tied up in the asset.
The releases of various tranches of equity were made subject to milestones like pay load factor, on time performance, fleet utilisation, yield factor, rationalisation of various emolument structure of the employees. an oversight committee of the officers is to be constituted to monitor and ensure that the milestones were achieved by Air India before the release of tranches.

AI’s Debts

The debt-laden carrier, Air India has outstanding loans and dues worth Rs 67520 crore, of which Rs 21200 crore is working capital loan, Rs 22000 crore long-term loan on fleet acquisition, Rs 4600 crore vendor dues besides an accumulated loss of Rs 20320 crore.