Printed from Sinking Air India has Rs 16000 crore debt TNN 8 August 2009, 01:13am IST NEW DELHI: Saddled with Rs 16,000 crore debt, Air India (AI) has approached government for fresh capital infusion and soft loan even as the airline launched a major cost-cutting exercise. Because of huge losses in the past, AI's net worth has already become zero. However, in its presentation to government, AI's management has proposed a slew of measures for turnaround, which include an IPO in 2012 to raise fresh capital. Government is likely to come out with a detailed financial package on August 25. Besides financial restructuring, the government-owned company has also chalked out a strategy to become profitable. In order to regain its market share, AI would launch a low-cost domestic service in September, CMD Arvind Jadhav said. It is also restructuring operations and hiving off maintenance, repair and overhaul, cargo and ground-handling operations in separate companies. Jadhav said that these units will operate as standalone profit centres and provide services to other airlines also. The airline is looking for capital infusion to soar up the comfort level of its lenders. Jadhav said that according to industry norms, debt should be up to two times of the capital. In this case, government should infuse equity of Rs 8,000 crore in the company. However, sources in the government ruled out such a huge capital infusion. According to them, government is working out a solution to infuse some capital in the airline to restore normalcy in functioning. At present, AI is finding it difficult in arranging even working capital for day-to-day operations as banks are not comfortable in extending fresh loans. The capital infusion will also help AI restructure its debt. Jadhav said the airline is negotiating with banks and financial institutions to turn its high-cost debt of Rs 10,000 crore into low-cost. For this, the banks want the national carrier to get a comfort letter or a sovereign guarantee from the government. Air India Express, the national carrier's low-cost entity, will commence domestic operations from September on 27 routes out of the existing 100 routes AI operates. Jadhav said that these routes were not profitable and the company was not only losing money but also passengers to the other low-cost airlines. He said the national carrier was estimating an earning of Rs 180-200 crore through its low-cost operations on the domestic sector, which would ‘‘improve our bottomline". Gradually, Jadhav said, the AI would shift 70% of its existing domestic operations to low cost Air India Express. On manpower rationalisation, he said the creation of subsidiary companies — engineering, maintenance and ground-handling — would lead to almost two-third of the 32,000 staff going out of airline operations, which would lead to lowering of the aircraft-to-employee ratio to match global standards. In the recovery roadmap, the AI chief said employees' participation in the process was absolutely essential, and the unions had been made part of the Turnaround Committee, which would monitor the progress over the next three years. In fact, 50% of the committee member will be from the employees' unions. This committee will deal with nine areas including route and manpower rationalisation, operations and financial restructuring. ‘‘We are officially involving all the employees associations in the roadmap to recovery. http://timesofindia.indiatimes.com/news/business/india-business/Sinking-Air-India-has-Rs-16000-crore-debt/articleshow/4869580.cms