The finance ministry has turned down Rs 30,000 crore fund infusion proposal for Air India as it the carrier does not have a clear turnaround plan.
The civil aviation ministry had asked for the government’s help to repay the mounting debt as the airline had been defaulting on salary disbursements and payments to vendors.
The finance ministry has instead asked the airline to transfer its non-core assets and subsidiaries to a special purpose vehicle (SPV).
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Those assets would be monetised to reduce the company’s unsustainable portion of the debt. Of the Rs 50,000 crore total debt, around Rs 22,000 crore has been termed unsustainable, implying it cannot be serviced with the cash flow income, the Business Standard newspaper reported.
Senior officials aware of the development said the civil aviation ministry was of the view that the airline could not perform at the optimum level due to the hefty interest outgo.
“The civil aviation ministry had proposed that a small infusion of funds was not helping the airline’s turnaround plan as it was paying Rs 4000-5000 crore annually in interest,” said the Business Standard quoting a senior official.
However, sources in the finance ministry suggested that the airline was unable to come out with a concrete turnaround plan. “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,” a senior finance ministry official said.
Simultaneously, preparations are underway to sell Air India’s engineering and ground-handling subsidiaries, Air India Engineering Services Limited (AIESL) and Air India Air Transport Service Limited (AIATSL).
“We have started the sale process of the two subsidiaries,” said a senior government official. The airline’s non-core assets comprise real estate assets across prime locations in cities and airports.