A-I may get phased equity infusion

The government's financial restructuring plan for loss-making Air India may include a staggered infusion of equity, entailing an initial infusion of around Rs 1,300 crore (Rs 13 billion), going up to around Rs 2,000 crore (Rs 20 billion), depending on the company's need.

The airline has made losses of Rs 5,000 crore (Rs 50 billion) on an equity capital of Rs 145 crore (Rs 1.45 billion).

In the second stage, the government is also looking at roping in financial institutions to invest in the company's equity, since an initial public offer has been ruled out owing to the company's financial mess. Financial institutions will, however, have an exit route when the IPO does take place.

These are some of the key issues expected to be discussed by the committee of secretaries (CoS) that is meeting on Saturday and has been assigned to draw up a financial restructuring plan for Air India.

The CoS is headed by Cabinet Secretary K M Chandrasekhar and comprises Aviation Secretary M M Nambiar, Finance Secretary Ashok Chawla and Principal Secretary to the Prime Minister T K A Nair.

The committee was set up after aviation minister Praful Patel and Air India Chairman Arvind Jadhav made a presentation to Prime Minister Manmohan Singh on the airline's financial crisis.

Top sources in government said there is no question of deferring the delivery of aircraft that have already been ordered as such a move would force them to pay penalties. Air India had ordered 111 aircraft and have already taken delivery of 48. The total investment for buying the aircraft is Rs 40,000 crore (Rs 400 billion).

"We should either stop all deliveries or continue to take the deliveries as we undertake the financial restructuring. Half-measures make no sense" said a senior official involved in the restructuring.

Government sources also note the long-term debt that needs to be raised would be supported by a sovereign guarantee and will be determined once the level of equity infusion is fixed.

The sources also pointed out that while SBI Caps, mandated to prepare a report suggesting the financial restructuring of the airline, has still not given its final report, it has apprised the government of the need to infuse a combination of equity and debt for the airline.

Problems came to a head last year, when Air India asked the government for permission to increase its working capital from Rs 15,000 to Rs 19,000 crore . The government rejected the proposal and allowed Air India an enhancement of only Rs 1,000 crore to pay off some of its dues.