Govt turns down Rs 30,000 crore capital infusion plan for Air India, tells it to sell non-core assets

Govt turns down Rs 30,000 crore capital infusion plan for Air India, tells it to sell non-core assets

The Ministry of Finance has rejected Air India’s demand for Rs 30,000 crore fund infusion plan and has instead suggested ways to reduce its debt burden by selling non-core assets. The fund-infusion proposal has been turned down in the absence of a clear turnaround plan, a Business Standard report said.

Analysts suggest the government’s decision to reject fund infusion proposal could have stemmed from the fact that another bailout package might not play in favour of the present government in the upcoming Lok Sabha elections in 2019. They believe the government can’t spend funds on bailing out debt-laden airline when funds can be spent on agriculture and infrastructure projects.

Govt turns down Rs 30,000 crore capital infusion plan for Air India, tells it to sell non-core assets

The report quoted a senior official, who was aware of the development, saying the airline could not stand on its feet with small capital push as it has to pay around Rs 4,000-5,000 crore as outgo interest per year.

“The last bailout package for the airline didn’t improve the functioning of the airline. Instead, the burden kept on increasing. So it has been proposed that the airline should transfer the non-core assets and its subsidiaries into the SPV, following which the government will monetise the assets and pay off the unsustainable portion of the debt. That will help in cleaning the airline’s books,” said the newspaper quoted the official as saying.

Earlier reports had said the Civil Aviation Ministry sought Rs 11,000-crore bailout package for the airline, which continues to grapple with financial woes, including consecutive default on salary for the past five months and delay in payment to vendors. Last month, the government had sought Parliament’s nod for supplementary grants worth Rs 980 crore for the airline.

Now the ministry has advised Air India to transfer its non-core assets and “unsustainable debt” — of the total Rs 47,000-crore debt, Rs 22,000 crore is unsustainable — to a ‘Special Purpose Vehicle’ as part of its plan to revive the national carrier. The non-core assets are no longer needed for a company’s business operations and can be monetised to raise money in times of financial crisis.

The airline has total Rs 47,000-crore debt, of which aircraft loans amount to Rs 15,871 crore, while over Rs 23,398 crore is working capital loan.

In the current financial year, the airline has received an equity infusion of Rs 650 crore up to June. Turnaround Plan (TAP) and a Financial Restructuring Plan (FRP) were approved for Air India by the previous UPA regime in 2012. All government guaranteed loans and interests thereon are being paid by the government by way of equity infusion into the airline. Under the FRP, the high cost of working capital loans has been converted into long-term debt carrying lesser rates of interest so as to reduce the financial burden on Air India.

The airline is staying afloat on over Rs 30,000 crore bailout package extended by the previous UPA regime in 2012 for 10 years. Of the total bailout package, the airline has received Rs 27,195 crore so far.

source: businesstoday