Friday, February 19, 2010

Government approves equity support of Rs. 800 crores to NACIL

The Government today has approved the proposal for release of equity support of Rs.800 crores in two equal monthly installments to National Aviation Company of India Limited (NACIL). This equity infusion had earlier been approved by the GoM headed by the Finance Minister. The release of funds will be calibrated to the achievement of milestones laid down by the Group of Ministers (GoM).

NACIL is currently facing severe financial losses which is compounded by its costly legacy assets, weakening revenue stream and high cost structure, resulting in rising liabilities. Upon the directions of the Government, NACIL initiated a multi-pronged turnaround plan which included the following measures:

· Complete rationalization of manpower and productivity linked incentive.

· Complete the integration process of erstwhile Indian Airlines & Air India.

· Review of all agreements on technical & operational matters.

· Return of leased aircraft at the earliest.

· Large-scale redeployment of staff to curb infructuous expenditure.

· Closure of all overseas offices where NACIL does not operate.

After the financial restructuring and other turnaround measures adopted by NACIL, the GoM had accepted the company’s savings and cost reduction plan of Rs.1911 crores for the financial year 2009-10.

NACIL has initiated action as part of the Turnaround Plan along with cost reduction/revenue enhancement programme focusing on Fleet rationalization, Route Profitability, Manpower Rationalisation and Structural Changes. Fleet Rationalisation is being attempted through reduction of fleet size from 146 aircraft to 105 by March, 2011. 22 aircraft are being removed from the fleet by way of leasing out, return of leased aircraft and sale of aircraft. It has been estimated that this will result in annual cost savings of Rs.200 crores on maintenance and inventory cost and Rs.400 crores in fuel consumption and efficiency gains. Future requirement of cockpit, cabin crew and engineers would get reduced, resulting in annual savings of Rs.300 crores.

Route Rationalisation has been reworked for Winter Schedule 2009 (upto March 2010). Restructuring of operations over Frankfurt Hub (effective December 2009), capacity adjustments, rationalization of overlap operations of NACIL(I) and Air India Express, reduction of positioning flights and 6 B747 to be taken out and replaced by other aircraft will result in expected savings of Rs.563 crores in the current year. Medium term network strategy by end of December, 2009 is being worked out with the assistance of M/s. Simat Helliesen & Eichner. Inc consultants that will focus on profitable hub operations, leveraging partners for efficiency like DIAL T3 and Star Alliance. Manpower rationalization (including staff-related costs) is being attempted as an immediate, short-term and a long-term exercise which is expected to result in annual savings of Rs.113 crores, once implemented in full.

NACIL has shown improvements in its operational and financial parameters during the first half of financial year 2009-10 in comparison to the corresponding period of financial year 2008-09. The passenger load factor, which indicates the utilization of Available Seat Kilometer offered by the Company, has improved from 57.7% to 62%. The number of Revenue Passengers carried increased from 5.32 million to 5.61 million. As for financial performance, its operating loss of Rs.2029 crores was about 23% less as compared to Rs.2638 crores for the corresponding period of last year.

NACIL’s present paid up equity capital of Rs.145 crores is not sufficient for an aviation company of its size. The equity induction will not only ease the cash flow situation of the company but would also preclude borrowing from the markets at a high cost. The turnaround/restructuring plan of NACIL will be monitored and reviewed by Ministry of Civil Aviation, COS and GOM periodically.

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