Air India Ltd., the unprofitable state-owned carrier, may get government bailouts totaling 300 billion rupees ($5.8 billion), an amount about five times the market value of the nation’s three listed airlines.
The cash injections through 2020, in the form of new equity, will be tied to performance milestones such as percentage of seats filled, Aviation Minister Ajit Singh told reporters in New Delhi yesterday after the cabinet approved a 67.5 billion rupee bailout. He didn’t say if that figure was included in the 300 billion-rupee tally.
Further support for Air India may add to pressure on Kingfisher Airlines Ltd. (KAIR) and Jet Airways (JETIN) (India) Ltd., which are struggling to turn surging travel demand into profit because of price wars and rising fuel costs. The carriers both fell in Mumbai trading yesterday after the government backed the Air India plan without making a decision on whether to let local carriers sell stakes to overseas operators.
“I see very little justification for the government to actively participate in the airline industry,”said Rishikesha Krishnan, a professor at the Indian Institute of Management, Bangalore, who has written papers on Indian aviation industry. “The government investing in Air India does distort the market to some extent.”
Singh said he expects Air India to make an operating profit by 2018 as it restructures operations. The government also approved the carrier’s plans to add 27 Boeing Co. (BA:US) 787s and three 777s.
The cabinet will take a decision “soon” on whether to allow local carriers to sell as much as 49 percent to overseas airlines, he said. Air India would also probably be able to sell a stake if it wanted, he said.
Kingfisher rose 2.1 percent to 19.70 rupees at close of trading in Mumbai today. Jet Airways gained 1.4 percent while SpiceJet Ltd. (SJET) jumped 10 percent.
The government will consider investment proposals by foreign carriers after the rule change on a “case by case” basis, Singh said. Management control will remain with Indian executives, he said. A panel of ministers has already backed the proposal.
Kingfisher, which is seeking funds after more than 10 quarters of losses, has said that potential investments hinge on the new rule coming into force. The carrier has slumped 56 percent in the past year, giving it a market value of 11 billion rupees, as it slashes flights and struggles to pay bills.
Air India, which has already received 32 billion rupees of government aid since April 2009, will separate its aircraft maintenance and ground handling operations as part of the restructuring, Singh said.
The carrier has been unprofitable since its 2007 merger with state-owned domestic operator Indian Airlines Ltd. It piled up losses of about 181 billion rupees in the three years ended March 31, 2011, Vayalar Ravi, the then aviation minister, told parliament in November.
The airline has failed to turn surging demand into profit as it struggles to combine operations following the merger. It has 263 employees per aircraft compared to 102 of closely held IndiGo, the only profitable carrier in India.
Air India’s debts also swelled to 438 billion rupees following orders in 2005 and 2006 for 111 planes from Airbus SAS and Boeing. The airline has a fleet of 121 planes and carried 7.5 million passengers in local routes last year.
Jet Airways, which has 102 planes, carried 11 million passengers last year and had a market value of 30 billion rupees. SpiceJet, with a market value of 14 billion rupees, has a fleet of 39 aircraft and carried 9.6 million passengers.
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