The Naresh Chandra Committee, which has prepared a roadmap for the civil aviation sector, is also in favour of an immediate infusion of equity in Indian Airlines and Air-India without linking them to the fleet acquisition plans of the two airlines.
"Considering that Indian Airlines is not doing well financially, an equity infusion is required and it does not make too much sense to connect it with the carrier's fleet acquisition plans," said sources associated with the Naresh Chandra report that was presented to the civil aviation ministry earlier this month.
This suggestion, which has been communicated to the ministry, is not part of the Naresh Chandra report, the final part of which is expected to be presented in February 2004.
The sources said the infusion of fresh equity was a must for the airlines before their privatisation.
For Indian Airlines, the equity infusion should follow the Vijay Kelkar committee recommendations submitted to the ministry in 1995, they added.
The Cabinet had then cleared the proposal for infusion of Rs 325 crore (Rs 3.25 billion) equity in Indian Airlines. It had, however, added a rider that the money should be used to leverage loans to buy new aircraft for the airline.
In 1995, the Kelkar committee had recommended that the government should inject a capital of Rs 475 crore (Rs 4.75 billion) in Indian Airlines.
Out this, Rs 200 crore (Rs 2 billion) would be the compensation for the grounding of the Airbus A-320 fleet, Rs 150 crore (Rs 1.50 billion) would be subordinated loan to be returned in three years, and Rs 125 crore (Rs 1.25 billion) would be equity at par.
The Kelkar committee had further suggested that Rs 447 crore (Rs 4.47 billion) should be mopped up through a employees' stock option, sale of assets and aviation turbine fuel price differential.
The finance ministry had objected to an equity infusion on the basis of the fact that Indian Airlines was up for divestment.
However, the Naresh Chandra panel feels the issues of divestment and fleet acquisition should proceed simultaneously and one should not be used as an excuse to stop the other.
It was due to the finance ministry's objections that Indian Airlines and Air-India had to be removed from the divestment roster to facilitate their fleet acquisition plans.
On the divestment of the two state-owned airlines, the committee has suggested that management control should be transferred from the government at the earliest.
The committee has recommended that shares of the airlines could be placed with domestic financial institutions and foreign institutional investors. This consortium should be allowed to appoint a management team of their choice and exit at their volition.
Additional funds
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In 1995, the Kelkar committee had recommended that the government should inject a capital of Rs 475 crore in IA.
- The Cabinet had cleared the proposal for infusion of Rs 325cr equity in IA.
- The finance ministry had objected to an equity infusion as IA was up for divestment.
- The Chandra panel feels the divestment and fleet acquisition processes should proceed simultaneously.
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