Wednesday, May 31, 2017

Debt trap: Air India's ride out of turbulence may have hit a dead end

New Delhi: Documents reviewed by Business Standard show that the Modi administration has been aggressively pumping money in a bid to resuscitate Air India’s fortunes. From August 2014, a couple of months after the Narendra Modi led National Democratic Alliance (NDA) government assumed power, till March 2017, Rs 16822 crore have been infused into Air India from tax payer’s money. The first tranche of Rs 2000 crore was received by Air India in August 2014. Subsequently, six more payments totaling Rs 1947 crore were made from September 2014 to February 2015.
Between April to November 2015, seven payments amounting to Rs 3300 crore were made. Air India had also requested the government to treat interest reimbursements on its aircraft loans as revenue grants rather than equity support. This according to the airline would have helped it reduce the interest burden in its balance sheets.
The Modi government’s resolve to revive Air India seemed to have grown stronger the next year. In March 2016, Rs 4318 crore was given to the airline. These payments were in the form of equity infusions with Air India issuing over 4 billion shares to the government and were part of the national airline’s Turnaround Plan (TAP) and Financial Restructuring Plan (FRP). In March 2017, another Rs 5257 crore was given to Air India in the form of equity infusions. Being a government owned company; over 5 billion shares were allotted to the President of India as part of the deal. While these figures look impressive, Air India has been surviving on such infusions for a long time now. In 2013-14, the erstwhile Manmohan Singh led United Progressive Alliance (UPA) government had pumped Rs 6000 crore into the airline in a similar manner. This was Rs 1000 crore more than the approved amount.
By the look of it, these infusions over the years seem to have had little impact in reducing Air India’s overall debt situation. The airline has started explicitly stating its overall debt position in its annual accounts only since 2014-15. Its overall debt stands at Rs 52460 crore. Its net worth is negative. Its aircraft project loans have hovered around the same mark of over Rs 22000 crore since the last five years. It’s passenger load factor (PLF) and overall revenues have improved marginally over the years. Losses in 2014-15 stood at Rs 5860 crore. The only profit (of around Rs 15 crore) it ever made in years was in the month of December in 2014 when aviation turbine fuel prices were at an all time low. It has continually trimmed its workforce over the years. In 2011, it had more than 26000 employees on its rolls including over 5000 Schedule Castes (SCs) and over 1400 Other Backward Castes (OBCs). In 2014-15, its employee strength was just over 21000. The number of SCs and OBCs employed by Air India fell by 26% in line with the overall pruning of the workforce.
The airline’s CEO Ashwani Lohani in an open letter on March 15, 2017 had blamed mounting debt as the cause of Air India’s ills. Lohani had noted, “Of course gross mismanagement at the senior management levels of the company played its part in the rapid downward slide too, but isn't appointing senior management functionaries the function of the governments? Yet the mountain of debt that we acquired appears insurmountable and is at the root of all the problems that manifest as symptoms to all and sundry.”
While the open letter was uncharacteristic of a senior bureaucrat, it also indicates that Air India’s ride out of turbulence could have hit a dead end.
31/05/17 Sai Manish/Business Standard