Cabinet nod for AI turnaround plan likely today

The revival plan for Air India is likely to be approved by the cabinet committee on economic affairs (CCEA) today. Apart from restructuring its debt, which would ease its interest burden by almost Rs1,000 crore, the ailing national carrier may also be allowed to issue government-guaranteed bonds worth Rs7,400 crore.

A group of ministers headed by finance minister Pranab Mukherjee had earlier approved the restructuring plan, which was also approved by an 18-bank consortium led by State Bank of India last month.

As part of Air India's restructuring, the government has decided to infuse Rs4,000 crore as additional equity during the current fiscal. This would raise the airline's equity base to Rs7,345 crore.

The CCEA is also likely to decide on the issue of closing down the defunct state-run feeder air service, Vayudoot, by compensating Air India for its earlier losses. Vayudoot, launched in 1981 and originally conceived to operate in the northeast, used to fly to over 100 destinations during its existence.

One of the major financial problems for AI is the high rate of interest (13-14 per cent) it currently bears on a working capital loan of Rs22,165 crore from the consortium. According to the cabinet note, Rs11,000 crore of this loan will be transformed into long-term loans with 10 per cent interest rate.

The government may approve the conversion of another Rs7,000 crore of the loan into cumulative preference shares. For the remaining amount, the government may offer additional cash credit to the ailing airline.

While the finance ministry and civil aviation ministry are keen on seeing that the turnaround plan gets approved in the CCEA, a section of the union cabinet is opposed to such pumping of funds into a commercial entity.