The Indian Government will inject Rs10 billion ($236 million) of fresh equity into Air-India as part of a restructuring plan. The finance ministry will raise the proposed investment from the sale of the airline's subsidiary Hotel Corporation of India. "Bids have been invited from consultants to carry out the sale process," says a finance ministry official. If the proposed amount is not raised from the sale, the finance ministry will provide funds from the national exchequer.

The Disinvestment Commission suggests that Rs10 billion be injected into the airline as fresh equity, in addition to finding a strategic alliance partner which could invest another Rs7.7 billion.

Air-India, however, estimates that it needs about Rs20 billion for the restructuring. The carrier wants around Rs11 billion to wipe out its short-term borrowings, which carry an annual interest burden of Rs1.1 billion, and Rs6 billion to refurbish its assets and fleet. "This is the only way in which Air-India could come out of the red," says managing director Michael Mascarenhas.

Mascarenhas says that the airline would find it difficult to survive if the fresh capital was not injected. During April-August, it lost Rs1.1 billion and losses for the current fiscal year are expected to reach Rs3.4 billion, reaching Rs4.2 billion by 2000. Losses have mounted over the past three years and, if nothing is done, short-term borrowings are expected to reach Rs17.2 billion by March.

Market share has dipped from 50% in the late 1970s to 20%, and the debit-equity ratio currently stands at 5:1. "Air-India's net worth will turn negative by June 1999 if adequate funds are not infused immediately," warns the Kelkar committee, a government group set up to recommend a turnaround plan for the airline.

Source: Airline Business