Ashwini Phadnis

New Delhi, April 3

The Government may eventually give a financial lifeline to Air India by pumping more funds into the carrier rather than divesting a stake to a strategic investor. The airline, expected to report a loss of Rs 5,500 crore this year, is in urgent need of funds to not only pay for acquiring aircraft but also to meet other expenses.

It is estimated that the Government will have to pump in about Rs 5,000 crore annually for the next few years if it decides to follow this line of action.

Sources told Business Line that this seems to be the thinking in the higher echelons of the Government at the moment. A clear picture on the way forward for the airline will emerge only after the strategy paper, being prepared by the Ministry of Civil Aviation, goes to the Cabinet.

“The paper will be prepared and presented to the Cabinet by the Civil Aviation Ministry. There will be no inter-ministerial discussion on it. The paper is highly unlikely to say anything about a strategic investor but will just present the current situation of the airline to the Cabinet,” said a senior Government official.

It is likely that this time around the Union Cabinet will decide to set up a Group of Ministers to consider the options that are available to bail out the airline.

This is not the first time that the option of providing Government funds to the airline will be considered. Earlier, Air India had approached the Government seeking a one-time equity support of Rs 10,000 crore for repayment of the aircraft principal.

The airline had also sought a Rs 10,000-crore interest-free, 10-year loan with a five-year moratorium to support working capital reduction.

Eventually, the Cabinet decided to make available Rs 800 crore, which the airline recently received, and took its paid-up capital to Rs 945 crore.

The Government has also indicated that another Rs 1,200 crore will be made available to the airline soon.

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(This article was published in the Business Line print edition dated April 4, 2010)
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