New Delhi: Giving a new lease of life to the financially embattled Air India, the government on Thursday announced a turnaround package with a Rs.30,000 crore equity infusion over a nine- year period and induction of 27 Boeing 787 Dreamliners.

READ MORE:Decision on FDI in aviation deferred

In another development, the government also approved a proposal to hive off Air India's MRO (Maintenance, Repair and Overhaul) business and its Engineering Services as two wholly-owned subsidiaries, placing about 19,000 of around 28,000 total employees with them.
Announcing the decisions of the Cabinet Committee on Economic Affairs (CCEA), Civil Aviation Minister Ajit Singh told reporters that under the approved Turnaround Plan (TAP) and Financial Restructuring Plan (FRP), the airline would get an upfront equity infusion of Rs 6,750 crore.
The airline has been allowed to issue government- guaranteed non-convertible debentures (NCDs) worth Rs 7,400 crore to its lenders, like financial institutions, banks, LIC and EPFO. These NCDs would be used to repay part of the airline's close to Rs 21,200 crore working capital loans.
Debts concerning the carrier

The debt-ridden carrier has outstanding loans and dues worth Rs 67,520 crore, of which Rs 21,200 crore is working capital loan, Rs 22,000 crore long-term loan on fleet acquisition, Rs 4,600 crore vendor dues besides an accumulated loss of Rs 20,320 crore.
The CCEA also gave its nod to the induction of 27 Boeing 787 Dreamliners and three Boeing 777-300s on sale and leaseback basis.
Under this system, one party sells a property to a buyer who immediately leases it back to the seller. This arrangement allows the initial buyer to make full use of the asset while not having capital tied up in the asset.
FDI in aviation industry of India

To questions about allowing foreign airlines to invest in Indian carriers including Air India, he said a decision is likely to be taken at the next meeting of the Cabinet. Singh said the FRP proposal that additional equity of Rs 30,231 crore be infused between 2012 and 2021 in the airline was also approved by the Cabinet. "But Air India will have to fulfill the tasks set out in the TAP and meet all the milestones" on a regular basis to get these benefits.

Asked if Air India would also be allowed to find a suitable foreign airline partner, the Minister said the decision to allow foreign airlines to pick up 49 percent stake was for all Indian carriers.
"Air India will have to find the right suitor... But the government will still own it," he said. On the FDI issue, Singh further said that investment by foreign carriers would not be through the automatic route and it would have to go through all checks and balances.
"Indian nationals will have substantial ownership and sufficient control. ... Two-thirds of the Directors will have to be Indian. Then there are security issues also," he said. Regarding Air India, he said the TAP and FRP would also give the airline cash deficit support of Rs 4,552 crore till 2021, as also equity for the already-guaranteed loan of Rs 18,929 crore till the same period for aircraft acquisition.    

The Minister said the SBI-led consortium of banks have also approved conversion of short-term working capital loans of Rs 11,000 crore into long-term loans.
Norms for airlines

"By 2020-21, Rs 30,000 crore will be infused. But there will be many check-points. If the airline meets the milestones, it will get the money," he said, adding that a Committee of Officers would be set up in a week to monitor whether the airline was meeting all the set parameters.
These include maintaining on-time performance of upto 90 percent, passenger load factor of about 73 percent and improving yields.
To questions about the two subsidiaries which are to be floated, he said while the MRO subsidiary, to be called Air India Engineering Services Limited, would get equity of Rs 375 crore over the next three years, the one handling ground handling, named Air India Air Transport Services Limited, would get Rs 393 crore as equity over 12 years.

Recruitment in aviation sector

Maintaining that both the new subsidiaries would be operationalised soon, the Minister said the MRO subsidiary, where about 7,000 Air India employees would be placed, was expected to tap the potential of nearly USD 1.5 billion MRO business in the Asia Pacific Region.
Similarly, the subsidiary dealing with ground handling and other services would employ about 12,000 Air India staffers. "Both these subsidiaries would be developed as independent business and profit centres".
Asked whether any unrest among employees was expected, Singh said the Justice Dharmadhikari Committee, which had gone into the staff-related issues connected with the merger of two erstwhile government carriers, had also recommended it.
Earlier, the government, as part of the TAP, had announced infusion of Rs 4,000 crore during the current fiscal in the 2012-13 Union Budget. This would raise the airlines' equity base to Rs 7,345 crore.
The FRP would provide relief to Air India from its debt servicing obligations on working capital, in the form of a substantial reduction in interest outlays while giving it the necessary time to improve its operational efficiency and implement the TAP.
Air India had signed four agreements with the banks' consortium on March 31 -- the Master Restructuring Agreement, Working Capital Facility Agreement, Appointment of Facility Agent Agreement and Appointment of Trustee Agreement.
A major highlightof these was the conversion of about Rs 11,000 crore of the airline's working capital into long-term loan, carrying an annual interest of 11 per cent, which would lead to substantial savings of about Rs 1,000 crore in 2012-13 itself.
The government has so far infused equity of Rs 800 crore in 2009-10, Rs 1,200 crore in 2010-11 and another Rs 1,200 crore in 2011-12.