Government approves Rs300bn Air India bailout

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The Indian government has approved a restructuring plan to save cash-strapped state-owned carrier Air India.

Over Rs300 billion ($5.8 billion) will be pumped into the carrier over the next eight years, with an aim to return it to profitability by 2018, says the country's civil aviation minister Ajit Singh.

To help the ailing carrier, the government will provide an upfront cash injection of Rs67.5 billion, debt repayment of Rs74 billion to financial institutions and banks, equity of Rs45.5 billion for deficit support until financial year 2021 and also to provide for aircraft loans of Rs189 billion.

The government also approved the induction of 27 Boeing 787s and three Boeing 777-300ERs on a sale and leaseback basis.

Singh adds that the banks have also approved Air India's conversion of short-term working capital loans of Rs110 billion into long-term loans.

He, however, made it clear that the government will only release the money when targets such as load factor, on-time performance, fleet utilisation and yield factor are met. An oversight committee will be set up to monitor and ensure the targets are met before releasing the funds.

As part of its plan to make Air India profitable by 2018, the government has also approved proposals to hive off the carrier's maintenance, repair and overhaul arm Air India Engineering Services and its ground handling business and convert them into wholly owned subsidiaries.

Hiving off its MRO business will allow it to tap on the $1.5 billion MRO business in the Asia-Pacific region, eventually developing it into an independent business and profit centre.

To do so, Air India will provide Rs3.75 billion from funding received from the government, over three years, into the business. About 7,000 employees of Air India will be migrated into this subsidiary.

Air India Transport Services will also be set up to tap on the ground handling business. Air India will provide it with Rs3.93 billion over 12 years.