News / Asia

Government to Give $173 Million Bailout to Air India

The Indian government will give a $173 million bailout to its ailing national carrier, Air India, which has piled up massive losses. However there are concerns that efforts to revive the airline may not succeed.

Indian government officials say the cash infusion for Air India will be made in two phases. The funds being given are part of a larger financial aid package that is expected to help the state-run airline get back on its feet.  

The Indian government will give a $173 million bailout to its ailing national carrier, Air India, which has piled up massive losses. However there are concerns that efforts to revive the airline may not succeed.

Air India has promised to restructure the company and go in for a major cost cutting program. Officials say the loss-making airline will reduce its fleet from 146 to 105 aircraft and save nearly $200 million in other costs over the next year.

The airline has been struggling in recent years, and has piled up losses of $875 million in the financial year that ended in March 2009. It was a year when the global recession reduced business for most airlines around the world.

But experts say Air India's problems are not just linked to reduced passenger traffic during the global economic downturn. Aviation experts say the airline can only turn profitable through some tough measures, such as drastically reducing its 30,000 plus staff.  But lay-offs are a politically sensitive issue.

Sanat Kaul, a former top official in the civil aviation ministry, says it will not be easy for the airline to take the steps needed to turn it around because it is a state run company.   

"You have to reengineer the airline. But there is a problem with the normal public sector environment in which Air India is working. Public sector environment with all sorts of rules, regulations, parliamentary committees breathing down their neck it may not be possible. There are traditions in Air India there are union agreements in Air India, so all these things have to be looked in," said Kaul.  

The problems that Air India might face in trying to restructure became apparent last year when efforts to cut pay incentives of pilots had to be abandoned after they staged a strike. The strike was called off after the government intervened.

The government says it is hopeful that the airline will emerge from the current crisis it faces. However many see Air India as an example of India's failure to reform state-run companies, and there have been calls to privatize the airline.  

Founded before India became independent, the airline was a source of national pride, and was nearly dominant for decades before the civil aviation sector was opened to private airlines. But after India opened its skies in the 1990s, Air India found it difficult to compete, and saw a steady decline in its market share.

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