The state-run Indian oil marketing companies (OMCs) have extended Air India’s credit limit by two to three months. The government has guaranteed the limit. Previous Air India was on a cash and carry basis with the OMCs, which meant that the airline would have to pay every time it bought fuel from these companies. The airline owes Rs.2,300 crore to the OMCs and was forced to cut fuel supply to the airline in May that resulted in Air India and low-cost subsidiary Air India Express cancelling flights incurring further losses of Rs.10 crore.
The government is in the process of reviewing the airline’s turnaround and financial restructuring plan, which is expected to be completed in next month.
Air India’s cumulative losses amounted to Rs.22, 165 crore apart from a Rs.22,000 crore debt burdened to buy new aircraft. The government has granted a provision of Rs 705 crore in the first supplementary demand and Rs 500 crore has been paid on adhoc basis from the equity infusion of Rs 1,200 crore for 2011-12.
In 2010-11, the government is expected to pay Rs 151.28 crore to Air India for operating 10 VVIP flights, for which the airline has been paid Rs 40.46 crore.
Air India has paid the salary for the month of April, 2011 on May 10 and for the month of May on June 28. It has also paid the Performance Linked Incentive (PLI) for May on August 9.
It is hard to see a silver lining for the beleaguered Air India, but having come this far, the government will likely continue to prop up its ailing flag carrier and hopefully nurse it back to health.