National carrier Air India will receive a total of Rs.6,500 crore (about $1.08 billion) financial bail-out this year. The tax-payer funded bailout is part of a package exceeding Rs. 30,000 crore (about $6 billion at the time) approved in April 2012 and to be completed over nine years.
In his maiden budget budget yesterday, the finance minister Arun Jaitley proposed this bail-out as an infusion of additional equity in to the financial beleaguered carrier. Jaitley added Rs.1,000 crore on top of the Rs.5,500 crore infusion proposed in the interim budget of his predecessor P. Chidambaram, the finance minister of the previous UPA led government.
The bail-out became imperative as the airline missed financial performance targets which it agreed to as part of its turn-around plan, even as the airline reported a Rs. 48.75 crore EBITDA (earning before interest, taxes, depreciation and amortisation) positive performance.
READ ONLINE: Air India misses financial targets by 25%
The Indian government is also providing the airline additional indirect financial assistance in the form of long credit periods from government owned airports and oil marketing companies, mandated travel on the airline by government employees, sovereign guarantees to lower interest costs, allowing the airline to issue tax-free bonds to secure additional financing, and issuing of government backed non-convertible debentures worth Rs. 7,400 crore primarily to government controlled banks and financial institutions like the Life Insurance Corporation (LIC) of India, and the Employees’ Provident Fund Organisation of India (EPFO).
The airline is hoping to turn the corner with induction of newer aircraft like the fuel efficient Boeing 787-8 Dreamliner, but even here the airline is courting uninvited controversy with US carriers like Delta Air Lines complaining and suing the United States Export Import Bank for providing low cost financing to foreign carriers, such as Air India, for purchasing American airplanes.