In a bid to reverse its declining market share Air India is embarking on an ambitious fleet renewal and expansion plan which would double the number of aircraft to 54 by the year 2002. With the state coffers shut tight, the Indian flag carrier is planning a further expansion of its equity base to ease access to the financial markets to fund the acquisition programme.

The Rs200 billion ($6.36 billion) programme envisages the wet-leasing of nine used aircraft, with seven aircraft required by October of this year and the remaining two by January 1996. The carrier has tendered for six 200-250 seaters and three 400-seater jets to add to its current fleet of 26 aircraft.

The carrier appears to be keeping its options open by considering 13 different aircraft types for the tender, including the A310, A330, A340, B767, B747 and the B777. Air India is already wet-leasing two A310s.

The carrier also plans to acquire up to 22 medium capacity, long range jets under its latest five year plan - the carrier's ninth - from 1997 to 2002 and already has three B747-400s on order, two of which are scheduled for delivery in August 1996 with the other due to arrive in 1997. These will bring its B747-400 fleet to six. As part of the fleet renewal programme, Air India also plans to phase out six B747-200s.

The move is in part due to increasing government pressure on the flag carrier to reverse the decline in its share of the outbound market. Managing director Brijesh Kumar, a senior official at the Ministry of Civil Aviation, is looking to boost the carrier's market share, which fell to 18 per cent in 1994 from 20 per cent the previous year in a rapidly expanding market.

The carrier has long been hindered by capacity limitations, which have led to a 14 per cent loss in market share since 1980, according to a recent study by the state's Planning Commission.

With the government pursuing a general policy of refusing financial support to companies in the state sector, Air India has asked the Industrial Credit and Investment Corporation to prepare a strategy to enlarge the carrier's equity base from cash reserves to increase its leverage in the global financial markets. This is on top of the recent doubling of the equity from almost Rs800 million to over Rs1.5 billion. Air India will also benefit from sovereign guarantees.

Management will be encouraged further by the solid first quarter results to the end of June 1995. These showed a 32 per cent jump in net profits to Rs66 million from Rs50 million for the same period last year. Although the carrier will not comment on the size of the equity increase, it has strong reserves, totalling over Rs12 billion, of which Rs10 billion is held in fixed deposit accounts.

Source: Airline Business