The Indian government has agreed to bail out national carrier Air India, which posted an $800 million loss for the year ended 31 March and appealed to the state to save it from going under.
The amount that will be disbursed has not been confirmed and will depend on how the state-owned airline plans to restructure its business to stem future losses, says a spokeswoman for Indian civil aviation minister Praful Patel. Air India has said that it wants $820 million in the form of equity and soft loans from the government.
After a meeting with Indian Prime Minister Manmohan Singh, Patel told reporters that the airline must submit a cost-cutting plan to a cabinet-level panel within a month, spelling out how it plans to reduce labour costs, cut capacity, and streamline aircraft maintenance and ground-handling services.
There will not be an "open cheque book" and Air India should become profitable within two years, he added. "It will be difficult for the government to keep continuing our support unconditionally."
He also revisited the prospect of an initial public offering for Air India shares, saying that this was likely once the company had restructured. "This issue will come up in the future," he said. "The process for an initial public offering will happen after some phased steps are taken toward restructuring."
Air India said earlier this week that it aims to cut 5 billion rupees ($103 million) from its total wage bill of 30 billion rupees, and delayed paying $70 million in salaries from mid-June to 1 July due to a cash shortage.
It added that it plans to re-examine wage agreements, including flying allowances and productivity linked incentives, between management and unions. It is also considering ways to improve productivity, eliminate restrictive work practices, and reduce wasteful expenditure.
The carrier, however, also said that it has no immediate plans to defer aircraft on order as it wants to see how the Indian economy recovers first. It added that the new aircraft are coming in as it steadily sells older aircraft and returns leased aircraft.
Indian government statistics showed that the country's domestic passenger market shrank 11% in May, with Air India trailing Kingfisher Airlines and Jet Airways/JetLite in third place with just 18% market share. Air India's load factor was 69%, the lowest among all Indian carriers.