New Delhi: The finance ministry has approved a bailout package for national carrier Air India to steer it out of serious financial turbulence.
The bailout package could be announced by this weekend, sources told CNBC-Awaaz. Officials said the bailout would be in two parts – a capital infusion of Rs 7,000 crore and transferring of debt to a special purpose vehicle.
The ministry would also give a bank guarantee of Rs 2,000 crore on behalf of the cash-strapped carrier. This loan would be used as working capital by the airline, sources said.
The civil aviation ministry had recently held discussions with the finance ministry to get a Rs 11,000 crore bailout package for the ailing Air India, but it was rejected as the majority of it would have gone into servicing debts and would have done little to improve the core operations of the airline.
Sources said the first part of the new bailout plan includes transferring the non-core assets, subsidiaries and debt of Air India to a special purpose vehicle in a bid to reduce the burden of debt on the company by monetizing the assets.
All land, buildings and subsidaries of Air India will be transferred to this SPV, sources said, adding that a one-year timeframe has been set for monetization. While Rs 35, 484 crore of debt would be transferred to the SPV, the rest – Rs 19,826 crore - would remain with the airline.
Of the total debt, around Rs 22,000 crore is considered unsustainable, which means that it cannot be serviced with the cash flow income.
The second part of the bailout plan includes a capital infusion of Rs 7,000 crore that will be done in three stages. While Rs 6,000 crore will be given to the airline by next month, Rs 400 crore will be given in December and the rest, Rs 600 crore, will be given in March next year.
Earlier, civil aviation secretary RN Choubey said the government would aim to make the airline competitive before making a fresh push towards the disinvestment proposal. The government’s stake sale plan had earlier failed as the airline’s poor financial performance made it unappealing to buyers.