India’s cash-strapped national carrier, Air India, received some good news Thursday when the United Progressive Alliance government announced a new bailout plan for the embattled airline. However, the UPA didn’t say whether foreign airlines will be allowed to invest in the domestic civil aviation market, as privately-owned airline Kingfisher had hoped it would do.
The government approved the much anticipated Turnaround Plan (TP) and Financial Restructuring Plan (FRP) for Air India, but deferred until next week the question of whether to allow foreign carriers to enter the domestic commercial aviation market. Struggling Kingfisher, one of India’s biggest privately-owned airlines, is hoping to get badly-needed capital from foreign investors. In announcing the bailout for Air India, Civil Aviation Minister Ajit Singh said the Cabinet Committee on Economic Affairs had sought clarity on some of the issues surrounding the foreign carrier decision. They therefore had deferred on making a decision until the next cabinet meeting.
The UPA’s bailout plan for Air India will help the airliner in a number of ways. First, Air India will be given a 30,000 crore (about $6 billion) equity infusion over the next nine years, with Rs.6,750 crore (about $1.3 billion) of it coming upfront. In addition, the airline will be allowed to issue 7,400 crore worth of government- guaranteed non-convertible debentures to private sector lenders. The sale of these NCDs will be used to in part to payback the airline’s Rs 21,200 crore of outstanding working capital loans. Finally, the CCEA also announced that Air India will receive 27 Boeing 787 Dreamliners and three Boeing 777-300s on a leaseback or sale basis.
The latest bailout for Air India should be a wake-up call for the civil aviation ministry, Air India’s top management and strategy planners. Air India has become a hub of corruption and cronyism, which is ultimately how it reached its current state of affairs. The government needs to put in place an oversight mechanism to ensure not only that the public money is spent judiciously, but also that every single rupee is accounted for.