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Cash crunch: Air India ups working capital

July 22, 2008 10:22 IST
The National Aviation Company of India (NACIL), the entity that came into being after the merger of national carriers Air India and Indian, has increased its working capital limit to around Rs 9,500 crore (Rs 95 billion) in order to meet the recent hikes in fuel prices.

However, the move could increase the company's interest burden, which could affect its bottom line.

"NACIL has increased its working capital limit for the July-September period to tide over the liquidity crunch brought about by the hike in oil prices," said a senior Civil Aviation Ministry official, who did not want to be named.

According to the official, this is the second time since the merger on November 23 last year that NACIL has increased its working capital limit.

Sources said that the company's limit during the merger was Rs 6,500 crore (Rs 65 billion). Subsequently, the same was raised to Rs 8,000 crore (Rs 80 billion), and now to Rs 9,500 crore.

According to a presentation given by the national carrier to the ministry at a recent review meeting of the merger, it was shown that interest on borrowings was one of the primary contributors to its rising expenses.

While its fuel bill, which accounted for around 45 per cent of the total costs, grew by around Rs 410 crore (rs 4.10 billion) in 2007-08, the second largest spike was seen in interests on borrowings, which moved up by Rs 378 crore (Rs 3.78 billion).

In 2007-08, the national carrier is said to have incurred a loss of Rs 2,144 crore (Rs 21.44 billion), one-fifth of which was contributed by the increase in interest burden.

According to sources, statistics presented in the meeting also showed that while capacity offered by the airline increased by around 1.5 per cent over 2006-07, passenger revenue decreased by more than Rs 90 crore (Rs 900 million).

While Air India's average passenger load factors increased from 65.6 per cent in 2006-07 to 66.8 per cent in 2007-08, its yields in terms of RPKM decreased from Rs 3.25/RPKM to Rs 3.13/RPKM in 2007-08, a decrease of 3.9 per cent.

Also, if fuel surcharge was to be excluded, passenger revenue fell even more sharply from Rs 2.80/RPKM to Rs 2.53 in 2007-08, a decrease of almost 10 per cent.

Anirban Chowdhury in New Delhi
Source: