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India to Bail Out National Airline Carrier

Air India planes at Indira Gandhi International Airport in New Delhi (April 2011 file photo).
Air India planes at Indira Gandhi International Airport in New Delhi (April 2011 file photo).

The Indian government will give billions of dollars to rescue its debt-ridden national carrier, Air India. But the government has deferred a decision on allowing foreign airlines to pick up a stake in private Indian airlines, which are also struggling with losses.     

Civil Aviation Minister Ajit Singh says the government will infuse nearly $5.8 billion over the next eight years into Air India. He says the financial restructuring plan is expected to make the national carrier profitable by 2018.

The airline has been incurring heavy losses in recent years. Workers have not been paid salaries on time, and on at least two occasions, oil firms have halted fuel supplies to the airline for not paying its bills.  

Performance targets

Singh allayed growing concerns about the government’s decision to spend taxpayer money to rescue the airline. He says the cash infusion will be linked to performance targets, and the airline will have to prune operating expenses.

"Let’s be very clear that Air India has to rationalize their costs," he said. "They have to be in line with industry norms, otherwise government cannot and will not continue to use public money to run Air India."

Air India’s problems began five years ago when it was merged with a state-owned domestic carrier. It has not turned a profit since then.

Sanat Kaul, chairman of the International Foundation for Aviation and Development in India, says the cash infusion to revive the airline has come very late.

"They had a merger which was a failure …it has been many, many years since then, it has to be done fast," he said.

Private airlines also struggling

Air India is not the only airline that is in trouble. India’s aviation industry is facing a crisis with five of its six private airlines struggling with debt. The cumulative losses last year amount to an estimated $2.5. billion.  

The industry’s problems stem from the high cost of aviation fuel in India and a price war that has made it difficult for airlines to raise fares and recover costs. As a result, despite a huge rise in passenger traffic, most airlines have continued to post losses in recent years.  

The cash-strapped airlines have been hoping that the government will allow foreign airlines to pick up a 49 percent stake in local carriers. The measure, if approved, could be a lifeline for the industry.  

However, the government has deferred the much-awaited decision. Singh says the Cabinet will consider the measure when it meets next week.

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