Cabinet approves Rs1,200-crore equity infusion in Air India

The Cabinet Committee on Economic Affairs (CCEA) today approved a further equity infusion to the tune of Rs1,200 crore in national carrier Air India.

The total cash infusion by the government, including the Rs532 crore payment of fare for VVIP travel and evacuation services rendered by the airline, announced earlier, works out to Rs1,732 crore. Air India expects the fresh funds to come within a month.

The equity infusion in Air India, which is passing through a critical financial crunch, would not only ease the cash flow situation at the national carrier but would also preclude borrowings from the markets at high costs.

The decision to infuse fresh cash into Air India will also make it possible for the ailing airline to raise funds from the market.

"Air India's present paid-up equity capital is not sufficient for an aviation company of its size. The company is also bedeviled by costly legacy assets, a weakening revenue stream and high cost structure resulting in rising liabilities," an official release said.

The group of ministers at its meeting held on 3 February 2010 had made the recommendations along with a credible plan for revival of the airline that include:

• Rationalisation or harmonisation of the wage costs and legacy union agreements - this may lead to severe I-T issues and government's support to the management would be necessary; and
  
  
• Setting up of support businesses of MRO, ground handling and cargo;