MUMBAI, Feb 8: The civil aviation ministry has sounded the alarm bells on Air India management by stating that the airline is headed for a debt trap. In an official communique, the ministry has also stated that the airline may have to quickly go for an expansion of its equity base by offering shares to the public even before the airline turns itself around.The letter has specific comments regarding the debt burden, revenue generation and the divestment of the airline's stake in Hotel Corporation of India (HCI). According to the letter, which has been sent by civil aviation joint secretary Anil Baijal to the Air Indian managing director and the board, the interest liability on loans taken by the company is too high. The communique also points out that the working capital borrowings of Air India are nearly 22 per cent of its total borrowings.
An internal report prepared by the airline in December had indicated that the total short-term borrowings of Air India will go up to Rs 1,118 crore by the end offinancial 1997-98.
The airline's debt-equity ratio is as high as 4.99:1. Even the net worth of the company has got reduced from Rs 1,384 crore (as on March 31, 1994) to Rs 671 crore (as on September 30, 1997). A public issue by the airline is part of the ministry's plans to raise funds. In fact, the ministry is categoric that the airline should not subscribe to the theory that it must first turn around before public offers are made. The ministry points out to global industry norms where airlines have opted for public offers or privatisation when facing a financial crisis.
The other specific comment concerns the productivity-linked incentive payments made by the airline. The ministry is keen to review the PLI agreements unless the financial outgo is suitably offset by additional revenue generation by each category of employees. The ministry has asked for a comprehensive paper on the subject to be prepared by each department. The ministry's letter also clearly states that the divestment of Air India'sstake in HCI has to be given top priority to raise working capital for the airline. This comment is in direct contrast with the submissions made by HCI managing director Kamal Sharma to the Air India board when it met last in December.
Sharma's contention is that HCI is the only profit-making unit in Air India and so should not be severed from the airline.
Lastly, the ministry has underlined the bleeding of the airline's revenues and has suggested initiatives for reducing the distribution and marketing costs incurred while selling tickets. It observed that the total distribution and marketing cost in Air India is about 45 per cent of net fares which, according to industry experts, is way above industry standards.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
