New Delhi, Feb 6: The finance ministry has approved a revival package for Indian Airlines (IA) which proposes injection of fresh equity worth Rs 325 crore in a phased manner.The equity, however, can be utilised only to purchase new aircraft by the state-run airline.
"The funds will be given as and when IA wants new aicraft. They can be used as payment of margin money for new aircraft," said senior-level sources in the finance ministry.
Further, the domestic carrier has to meet a number of performance parametres in order to earn the Rs 325-crore equity injection.
IA's performance will be reviewed regularly after March 31, 1997. The performance indicators, which will be judged, include passenger-load factor and available tonne per kilometre (ATKM) per employee.
The revival package, sources said, has been drawn up after a careful consideration of the Kelkar committee report as well as the report of the Controller General of Accounts (CGA).
Civil aviation ministry officials said that the IAmanagement is not very happy with the revival package. The IA top brass had planned to first spruce up its balance-sheet before purchasing new aircraft.
"Now, the equity injection is tied to aircraft purchase, with the condition that we can spend it only as margin money. Our financial condition may not improve much," said sources.
Industry experts, however, point out that the new aircraft will add to IA's revenue and improve its financial performance.
IA currently has an equity base of Rs 100 crore. The company's reserves were wiped out in the 80's due to the grounding of its A320 fleet and a merger with Vayudoot.
The domestic carrier has put its aicraft acquisition plans on hold due to lack of funds. Chief amongst these plans is the acquisition of five-six 50-seater aircraft for operating short-haul routes. IA also plans to replace its ageing fleet of 10 Boeing 737s and 12 Airbus A300s.
The finance ministry's clearance to the IA revival package has been pending for long. It was increasingly feltthat the UF government may not have time to put together a turn-around scheme for the airline.
The UF government had appointed the Kelkar committee a year ago to suggest a turnaround strategy. It recommended a Rs 1,000-crore financial package, which included equity of Rs 125 crore and compensation worth Rs 200 crore.
The CGA, which was appointed by the finance ministry to examine the Kelkar report, had suggested a belt-tightening exercise for IA before any financial support from the government. It had cut down the financial assistance to IA.
INSIGHT -- Carrot for Indian Airlines
The finance ministry has dangled a carrot. Indian Airlines must reach for it. This is a tough proposition. It has been offered equity finance for purchasing aircraft. The equity expansion is conditional: the airline must improve its performance.
Actually, IA had put its aircraft purchase plans on hold. Its reserves have been wiped out. It was looking forward to a Rs 200-crore compensation for losses from grounding itsAirbus 320 fleet. Besides, it expected Rs 125-crore equity finance. (These formed part of the Rs 1,000-crore package formulated by the Kelkar committee for restoring viability to IA.)
The ministry has lumped the two specified amounts and promised an equity contribution of Rs 325 crore. There will be no compensation or grant. The equity will come as margin money for new aircraft purchases. IA will have to upgrade its capacity to absorb the equity offer. This is no easy task for a public sector enterprise. The carrot will remain out of reach.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
