A group of ministers (GoM) is considering a turnaround plan for Air India Ltd that includes infusion of fresh funds, recasting its debt and freezing the payment of employee allowances till the cash-strapped national carrier turns profitable.

The plan, which was discussed by the GOM at a meeting on Friday, will be dependent on the central bank’s approval on whether lenders can restructure the airline’s debt, said two government officials. The GoM selected one of several options presented to it by a group of finance ministry officials to turn around Air India as per a report in Mint by Tarun Shukla. 

Under the plan, the government needs to infuse more than Rs. 6,000 crore as equity upfront. About Rs. 20,000 crore in debt will need to be recast to help the airline.

Also, it envisages selling and leasing back of the first 14 of the 27 Dreamliner 787 aircraft from Boeing Co. meant to join its fleet by 2014 to keep them off the airline’s balance sheet, said one of the two officials.

The group of ministers led by finance minister Pranab Mukherjee and including home minister P. Chidambaram, petroleum minister S. Jaipal Reddy, Planning Commission deputy chairman Montek Singh Ahluwalia, aviation minister Vayalar Ravi and aviation secretary Nasim Zaidi met in the capital on Friday to discuss how to keep Air India afloat.

The GoM has also sought the Reserve Bank of India (RBI) view on whether the debt restructuring will help the carrier cut its debt, said the second government official. Both the officials declined to be named. The carrier has a short-term debt of Rs. 27,000 crore. In addition it has borrowed Rs. 42,000 crore to purchase aircraft.

“RBI has to be be comfortable that the exposure the banks are going to take is justified. It has to be convinced although the banks are not putting any equity,” said the second government official, referring to Kingfisher Airlines Ltd’s debt recast of Rs. 750 crore earlier this year. “Here the amount is Rs.20,000 crore.”

The restructuring would have to include reduction in interest rates and a moratorium on payments on part of the outstanding debt, the official said. Since this financial structure will differ from bank to bank involved in giving loans to Air India, this is going to be a “big exercise” and therefore time-consuming, he said.

In the meeting, one of the ministers argued that the airline’s debt will continue to mount until it is completely written off. RBI’s view will therefore be critical to the final outcome on Air India’s turnaround plan, he said. After RBI gives its views, the matter will be referred to the Union cabinet, said minister Ravi after the meeting.

The cabinet will also decide on whether to go ahead with the Dreamliners purchase, said the second official cited above. Boeing has presented a delivery schedule under which it will supply 14 Dreamliners till 2014.

The turnaround plan includes a freeze on payment of performance-linked incentives to Air india’s 30,000 employees till the airline turns cash positive before tax, and meeting cost cutting and staff reduction targets, which the airline may find unpalatable given resistance from labour unions.

“Employees,” the first official said, “will need to be part of this clarion call.”

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