The government is ready to support Air India, but wants the airline to improve its performance.
Arindam Majumder reports.
Air India will get only Rs 80 crore (Rs 800 million) as additional budget support in the current financial year from the government -- way below its demand of Rs 2,200 crore (Rs 22 billion).
Air India's Chairman and Managing Director Ashwani Lohani had written to the government that lack of funds might derail the turnaround process at the airline.
"The finance ministry accepted the civil aviation ministry's argument that additional funds was necessary for the airline but expressed its inability to accept the full demand," said a senior civil aviation ministry official.
According to Air India officials, the Rs 80 crore being offered is too negligible an amount to be invested in an airline.
While the government has said it is ready to support the airline, for that to happen the airline also needs to improve its performance.
"The money comes from the Consolidated Fund of India. Every company has to show some performance to get more funding," said an official in the civil aviation ministry.
Lohani had written to the civil aviation ministry last month saying that because of the airline's huge debt burden, a reduced equity infusion would put the airline's expansion plan in jeopardy.
The airline, he added, would be forced to raise temporary loans from the banks to bridge the liquidity gap, thus endangering the liquidity and survival of the company.
Air India has debt of Rs 46,000 crore (Rs 460 billion) and has an annual interest outgo of around Rs 4,000 crore (Rs 40 billion).
The challenge before the Air India management is reducing debt.
High interest and maintenance expenses have resulted in the airline posting a net loss of Rs 3,837 crore (Rs 38.37 billion) in FY16.
Air India received Rs 1,713 crore (Rs 17.13 billion) in equity in the Union Budget in February against its requirement of Rs 3,900 crore (Rs 39 billion).
The airline was expecting that the remainder Rs 2,200 crore would be released in the supplementary budget, but the finance ministry has turned down the airline's request.
Lower equity infusion could result in increased finance costs and impact the turnaround plan, the airline told the government.
Air India is on a Rs 30,000 crore (Rs 300 billion) government bailout package and has till now received Rs 23,993 crore (Rs 239.93 billion) in equity including Rs 1,713 crore investment this year.
The infusion is meant to take care of cash deficit and to be used for loan repayment.
The airline was hoping to retire debt with equity infusion in 2016.
Air India was also looking at ways to reduce the debt and was discussing restructuring debt worth Rs 10,000 crore (Rs 100 billion) under the scheme for sustainable restructuring of bad assets floated by the Reserve Bank of India.
Simultaneously, sources said the airline was in talks with the Life Insurance Corporation for a loan of Rs 10,000 crore for acquisition of aircraft.
Air India posted an operating profit of Rs 105 crore (Rs 1.05 billion) in FY16, but has succumbed to losses in the first two quarters of the current financial year.
