With Air India seeking a Rs 5,000-crore bailout package from the government, Finance Minister Pranab Mukherjee today reviewed the turnaround plan of the national carrier, including the steps it was taking to cut costs and improve savings.
Mukherjee was briefed on the issue by Civil Aviation Secretary M Madhavan Nambiar and Air India CMD Arvind Jadhav at a meeting in his North Block office, official sources said.
The Finance Minister is understood to have made it clear that any government assistance to the national carrier would come only after it took concrete measures to reduce flab and costs. He reiterated the position that the airline should take more initiatives to cut costs and enhance savings.
In this context, it was also pointed out that on an average a pilot of Jet Airways earned about Rs 2 lakh a month, whereas their Air India counterparts got between Rs 3-4 lakh which included the productivity-linked incentives, informed sources said.
The meeting came as the Civil Aviation Ministry started work on preparing a note for the Union Cabinet on a package for Air India, including infusion of additional equity and a soft loan to overcome its present crisis.
The Air India Board is expected to meet on Wednesday following which Jadhav is likely to address employees on the urgent need to tighten their belts.
Late last month, a high-level Committee of Secretaries, formed specifically to look into Air India's financial health and suggest measures to improve it, had recommended infusion of additional equity in the airline and provide it a soft loan to counter the financial crunch.
The Committee, headed by Cabinet Secretary K M Chandrasekhar, had asked the Civil Aviation Ministry to move a note on the issue for consideration of the Union Cabinet.
Though there was no official confirmation of the quantum of equity infusion and the soft loan the government could consider giving to the national carrier, there were indications that its equity base, which now stands at only Rs 145 crore, would be enhanced by at least Rs 2,500 crore.
While the government would make only a partial contribution as equity infusion to the airline, a major part of resource mobilisation is likely to be through issuance of Initial Public Offer or infrastructure bonds, the sources said, adding that the Cabinet would take the final call on it.
Besides equity infusion, Air India had sought a loan of Rs 10,000 crore at 5-7 per cent interest for repayment over five years.
The carrier's losses had gone up to about Rs 7,200 crore in 2008-2009, while it has a debt of Rs 16,000 crore. It has started negotiating with banks and financial institutions to turn its high-cost debt of Rs 10,000-11,000 crore into low-interest loans.
However, the banks want Air India to get a comfort letter or a sovereign guarantee to convert these high-cost debts, which the government is understood to have agreed.
Yet another cost-cutting measure was a decision to slash the productivity-linked incentive and flying allowances by 50 per cent. However, a decision on the issue would be taken after consultation with the employees.
The AI management has evolved a formula to govern such incentives by linking it with the company's performance in terms of on-time performance, yield, seat factor, operating margins and profitability.
Air India hopes to save around Rs 600-700 crore by way of this reduction. Its total PLI payment annually amounts to around Rs 1,400 crore.
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