The Indian Airlines board on Thursday approved the creation of a subsidiary company to provide ground-handling services. The subsidiary will have an authorised capital of Rs 100 crore (Rs 1 billion) and paid-up capital of Rs 10 crore (Rs 100 million).

The subsidiary will enter into joint ventures with private players to provide services to domestic as well as international airlines.

Indian Airlines earns Rs 120 crore (Rs 1.2 billion) annually from ground-handling services, which is expected to increase after the formation of the joint venture.

Due to security concerns, the civil aviation ministry had decided to allow only three authorised government agencies to provide ground-handling services -- Indian Airlines, Air-India and the Airports Authority of India.

The three public sector units will hold a 51 per cent equity in the joint venture and get 10 per cent of the turnover. Ground-handling services yield around Rs 1,000 crore annually.

The Indian Airlines board also approved the voluntary retirement scheme for non-operational personnel. The airline expects 1,000 employees to avail of this scheme.

Around 7,000 of the 20,554 employees of the national carrier are engaged in non-core activities, due to which its aircraft to employee ratio is 1:361. If these activities are not undertaken or are outsourced, the ratio will come down to 1:245.

However, being a public sector enterprise, the Indian Airlines cannot outsource labour.

The board also estimated the operating losses for 2003-04 to be Rs 25.50 crore (Rs 255 million). This will happen if aviation turbine fuel prices fall or remain steady and there is a 5 per cent growth in passenger traffic.

Currently, aviation turbine fuel prices are at Rs 25,200 per kilolitre, which is 12 per cent more than in February 2003. This has forced Indian Airlines to raise its fares by 15 per cent.

The board also reviewed its revised estimates for 2002-03. Operating losses of the airline stood at Rs 153 crore (Rs 1.53 billion) in 2002-03, while the operating revenue was Rs 4,127 crore (Rs 41.27 billion) and operating expenses were Rs 4,280 crore (Rs 42.8 billion).

The board also noted that the operating revenue of Indian Airlines had increased 9.5 per cent in 2002-03 over 2001-02, while operating expenses increased only 7.3 per cent.