Petrol excise duty cut may crimp size of Air India bailout

New Delhi: Hopes of financially-beleaguered Air India Ltd to win a generous bailout package from the government have been dashed by last week’s surprise cuts in excise taxes on petrol and diesel.

Petrol excise duty cut may crimp size of Air India bailout

The finance ministry has decided that, in view of the reduced fiscal headroom for further spending, a new bailout deal should not comprise fresh equity infusion other than the ₹ 980 crore for which Parliament approval was secured in July, said a government official privy to the development.

The new bailout scheme will include a set of performance improvement measures, cost cutting and selective asset sale of the flag airline. The ministries of civil aviation and finance are however still to come to an agreement on substantive parts of the package, including the airline’s outstanding debt that totaled ₹ 48,781 crore in FY17.

The Air India bailout deal envisages transferring part of the airline’s debt and non-core assets to a separate entity.

“We are still to agree upon the numbers,” said the official mentioned above, requesting anonymity. “The ₹ 980 crore earmarked as part of the first supplementary demands for grants will, however, be released immediately.”

A finance ministry official, who also spoke on condition of anonymity, said a new bailout package has to go to the cabinet “at some point in time as the one currently in effect was cleared by the cabinet.” The current bailout scheme is to end in FY21. The Modi administration, which is in the final leg of its current term in office ahead of general elections in 2019, prefers to be cautious on any spending matter that was not envisaged at the beginning of the year.

New proposals from different ministries for extra expenditure will be apprised from the angle of whether they will have an immediate impact on the common man or not and the number of beneficiaries, said the first official cited above. The reduction in excise duty on petrol and diesel will cost the exchequer ₹ 10,500 crore for the rest of this year.

Air India had sought ₹ 2,121 crore from the government this fiscal under the ongoing bailout package but had received only ₹ 650 crore for meeting operational expenses.

The new bailout scheme is being prepared so that the debt-ridden airline can be brought back to health before an attempt at privatisation, an experiment that failed once earlier this year as investors did not find the offer attractive enough.

Air India now has around 12.3% share of the Indian domestic market, down from about 30% in 2002. The airline, along with its low cost international airline Air India Express, have around about 16.9% share of the international traffic to and from India.

With private airlines scheduled to take deliveries of about 120 aircraft in the current fiscal year, Air India’s market share could deplete further, according to analysts.

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