Post the financial restructuring plan (FRP) approved by a consortium of banks for ailing national carrier Air India (AI), the Union cabinet is likely to approve further equity infusion into the airline soon but in part.
The measure aims to provide funds needed for payment of salaries of 31,000-plus AI employees delayed for months.
The government's priority for disbursing funds to AI comes in the wake of employees threatening to strike work from April 2, the beginning of the holiday season, for salaries and allowances.
The employees had sought Prime Minister Manmohan Singh's intervention. The estimated bill for salaries and allowances could go well over Rs 600 crore, sources said.
Employees have not got their salaries for January and productivity-linked incentives (PLI) since July last year. PLI constitutes a major portion of their salaries.
Since the equity infusion will be in part, the airline's dues to oil companies, which is over Rs 800 crore, including payments to other vendors, will be pending.
The estimated fuel bill for AI for 2011-12 is pegged at Rs 8,000 crore. The government has so far infused equity of Rs 800 crore in 2009-10, Rs 1,200 crore in 2010-11 and another Rs 1,200 crore in 2011-12.
Under FRP, AI has proposed that the government should infuse equity of about Rs 30,231 crore in the 2012-21 financial period. Under FRP, agreements include conversion of about Rs 10,500 crore of the airline's working capital into long-term loan carrying an annual interest of 11 per cent. First year's interest will accumulate in a funded interest term plan leading to substantial savings of about Rs 1,000 crore in 2012-13 itself.
In addition, non-convertible debentures (NCDs), guaranteed by the government, worth Rs 7,400 crore will be issued and subscribed by investors, the officials said adding proceeds from NCDs will be used to repay the lenders. Besides, part of the working capital of about Rs 3,500 crore will be restructured as cash credit arrangement.
Officials said FRP will kick in after the Cabinet approves the additional equity infusion. FRP, approved by State Bank of India-led consortium of banks, may enable the carrier save several hundred crores in the first year itself.
FRP is based on the airline's overall turnaround plan aimed at providing immediate relief to the carrier through provisions such as funded interest term plan, repayment moratorium of longterm loans and upfront equity infusion by the government.
The plan, formulated on basis of projected cash flows of the company, provides a roadmap to improve the airline's operational efficiency and put it on the road to profitability.
The debt-ridden carrier has outstanding loans and dues worth Rs 67,520 crore, of which Rs 21,200 crore is working capital loan, Rs 22,000 crore long-term loan on fleet acquisition, Rs 4,600 crore vendor dues besides an accumulated loss of Rs 20,320 crore.
In December last year, the airline had a total of Rs 21,714.38 crore as short-term working capital loans. It pays an interest of over Rs 2,600 crore annually.
The financial restructuring began in May 2010 with SBICaps being appointed as financial advisor to the transaction.
Courtesy: Mail Today