A war of words is developing between the Indian finance and aviation ministries, over whether fresh public funds should be poured into ailing Indian Airlines.

The finance ministry is reluctant to back Indian Airlines' restructuring plan, prepared by the Kelkar Committee - India's equivalent of the group of Wise Men - claiming that the plan fails to address critical issues facing the state-owned carrier.

The Kelkar Committee has proposed a capital injection of Rs5.3 billion (US$137 million) for the carrier to make its operations viable. It wants the government to give the airline Rs2.2 billion in compensation for the 1990 grounding of its A320s, a loan of Rs1.7 billion to be repaid within three years and financial support of Rs1.4 billion.

The Finance Ministry's Controller General of Accounts (CGA), however, sees no need to compensate the airline for its grounding of 14 Airbus A320s between February and December 1990 following an air crash. 'Indian Airlines got an unforeseen bonanza when it received insurance on account of the A320 crash, which is greater than the Rs640 million loss it suffered in 1990/91,' says the CGA.

The CGA further criticises the airline for its low productivity and high losses. The CGA points to a uncompetitive cost structure, with staff costs accounting for 31 per cent of operating costs, compared with 7 per cent at rival Jet Airways. The CGApoints to a new incentive scheme as responsible for an increase in Indian Airline's staff costs from Rs3.7 billion in 1994/95 to an estimated Rs8.3 billion in 1997/98. 'Over the last few years, management has reached industrial settlement by negotiating productivity-linked incentive payments. But these have imposed a heavy financial burden. This is nothing less than self-destructive,' says the CGA.

According to the CGA, Indian Airlines' productivity levels in the current fiscal year are lower than those of 10 years earlier, and the load factor for April-September 1997 is the worst for the last 15 years.

Keen to take up Indian Airlines' defence, the aviation ministry criticises the factors used by the CGAin its attack on the airline. The ministry argues that the grounding of 14 A320s for nine months reduced passenger traffic and revenues when the airline needed to generate more revenue to finance its new fleet. Losses from the grounding of aircraft amounted to some Rs 10 billion.

Contradicting the CGA's allegations over productivity-linked incentive payments, the ministry claims that payments have actually increased revenues for the airline - the incentives generate revenue of some Rs2 billion per year, surpassing outgoings of Rs1.5 billion put towards the incentive payments.

Ravi Prasad

Source: Airline Business