In a note, second in the past three months, sent to the cabinet, the civil aviation ministry insisted that only a full implementation of the Kelkar committee report would save the airline from collapse.

The Kelkar commitee's main recommendations are: *compensation for grounding of A320 fleet and merger of Vayudoot: Rs 200 crore; subordinated loan (to be repaid in three years): Rs 150 crore; equity at par: Rs 150 crore; employee stock options: Rs 50 crore; contribution by sale and lease of aircraft and other assets: Rs 363 crore; public offering: Rs 760 crore (a phase II operation).

The finance ministry has, on the other hand, recommended that Rs 325 crore be given to Indian Airlines as equity, subject to the condition that the payment will be phased and in form of margin money for aircraft acquisition.

The ministry has also put other riders: that IA must achieve targets set by the civil aviation secretary, while showing improved productivity and better 1998-99 results after discounting fare hikes.

The civil aviation ministry has rejected the finance ministry plan saying that the airlines' viability and turnaround were dependent not only on funds' injection but also on funds proposed to be mobilised through public offering of Rs 760 crore.

The civil aviation ministry contended that the Kelkar committee report was a strategy package and could not be implemented in a piecemeal manner. The ministry said public offering followed funds' injection in phase one.

The ministry also said release of funds in form of margin money in phases for aircraft acquisition would not improve the airlines' bottomlines. Stressing that the Kelkar committee report be implemented in full without further ado, the ministry feared that the airlines' market share might drop to 11 per cent by 2002-03, if immediate steps were not taken. This may force the airline to fold up.

In a fix over the restructuring issue owing to the two ministries' divergent positions, the prime minister has not been able to act so far. The situation has now changed somewhat, with Kelkar taking over as finance secretary. PMO sources say Vajpayee will ask Kelkar to examine the issue afresh and thrash out differences with the civil aviation ministry.