AI hive-off plan to go before Cabinet
August 26, 2011 11:50 IST
After a long wait, the civil aviation ministry is moving a proposal for the formation of two strategic business units - one for ground handling and the other for engineering in Air India - to get Cabinet clearance next week.
"We will wait for the response from various ministries till the end of this week and will send the proposal to the Cabinet next week.
"The formation of SBUs requires approval from the Cabinet," said a ministry official, requesting anonymity.
For the engineering subsidiary, the airline is scouting for a global partner.
The GH subsidiary will operate in all airports except New Delhi, Hyderabad and Bangalore, where Air India Singapore Airport Terminal Services operates - another JV subsidiary of AI.
The formation of profit-making units and shifting of staff are key components of the turnaround plan.
These units will look for business from outside and provide services to Air India at cheaper rates.
The GH subsidiary will take 7,465 people and 10,481 people will be shifted to the engineering subsidiary without any change in terms and conditions.
The move will shift a wage bill of Rs. 931 crore (Rs. 9.31 billion) to the engineering wing and over Rs. 600 crore (Rs. 6 billion) to the GH wing.
At present, the annual wage bill of Air India is over Rs. 3,100 crore (Rs. 31 billion).
However, the services provided to Air India by these subsidiaries will come under the tax ambit.
Earlier, AI had plans to shift staff to AISATS but it opted to hire people on contract, because that would have been 50
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per cent cheaper. AISATS took only 10 per cent of the AI staff.
The engineering subsidiary will also look at getting third-party business from the maintenance, repair and overhaul industry in India, which is worth Rs. 2,000 crore (Rs. 20 billion) and is expected to witness faster growth.
The current engineering division in the airline services only AI planes.
The national carrier had initially planned to set up three subsidiaries - ground-handling, engineering and cargo but later decided against a cargo subsidiary.
The government will also infuse some equity in these subsidiaries in a time-bound manner.
"These business units will also get an equity support of Rs. 300 crore (Rs. 3 billion) from the government in a time-bound manner over a period of eight years," said the official.
AI has a debt of over Rs. 46,000 crore (Rs. 460 billion), over accumulated losses of Rs. 20,000 crore (Rs. 200 billion).
Of AI's Rs. 46,950 crore (Rs. 469.5 billion) debt, loans for buying aircraft stand at Rs. 20,185 crore (Rs. 201.85 billion), working capital loans are worth Rs. 22,165 crore (Rs. 221.65 billion) and others from overdues.
In its turnaround plan, AI is demanding an equity infusion of Rs. 43,000 crore (Rs. 430 billion) till 2021.
For the current financial year, it wants infusion of Rs. 8,373 crore (Rs. 83.73 billion), an upfront equity infusion of Rs. 6,600 crore (Rs. 66 billion) and support of Rs. 1,772 crore (Rs. 17.72 billion) in the form of a guarantee on short-term loans for this financial year.
The turnaround plan is being considered by a group of ministers headed by Finance Minister Pranab Mukherjee.
After a long wait, the civil aviation ministry is moving a proposal for the formation of two strategic business units - one for ground handling and the other for engineering in Air India - to get Cabinet clearance next week.