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Old 02-18-2010, 06:43 PM
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Default Govt OKs Rs 800cr fresh equity infusion into Air India

Beleaguered national carrier Air India will get equity infusion of Rs 800 crore ($160 million) in two installments to tide over its cash flow problem and to finance fleet acquisition plans.

A meeting of the Cabinet Committee on Economic Affairs, presided over by Prime Minister Manmohan Singh here Thursday, approved the fresh equity induction for the state-run National Aviation Co of India Ltd, the company that runs the carrier.

"The equity infusion had been approved by the group of ministers headed by the finance minister (Pranab Mukherjee). The release of funds will be calibrated to achieving the milestones laid down by the ministerial group," an official spokesperson said.

The company's present paid-up equity capital is Rs145 crore ($29 million) and that was found grossly insufficient for an aviation company of its size. The fresh equity will also preclude borrowing from the markets at a high cost, officials said.

The airline had posted a loss of Rs 7,200 crore in the last two fiscal years. The induction of fresh equity was approved only after it adopted a turnaround plan.

The carrier has also been asked to take the following steps:
- Rationalise manpower and productivity-linked incentives
- Fully integrate the erstwhile Indian Airlines with Air India
- Review all agreements on technical and operational matters
- Return all leased aircraft at the earliest
- Re-deploy staff to curb infructuous expenditure
- Close all overseas offices where Air India does not operate

The aircraft rationalisation plan calls for a reduction in the carrier's fleet size from 146 planes to 105 by March, 2011. Twenty-two aircraft are being removed from the fleet by way of sale, leasing out and return of leased aircraft.
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