Air India's Loans Erode Benefits Of Bailout, Says National Auditor (CAG)

The government may need to reassess the amount of bailout funds given to state-run carrier Air India because the airline's short-term loans have weighed on its finances, the Comptroller and Auditor General of India (CAG) said in a report on Friday. Heavily-indebted Air India should also monetise more of its assets faster and speed up the leasing of narrow-body aircraft to improve its performance, the government's auditor said. Under the Financial Restructuring Plan (FRP) approved in April 2012, the government had committed to infuse equity of Rs 42,182 crore over the long term. 

In its report tabled in the Parliament, the Comptroller & Audit General (CAG) said there has been erosion of equity infusion benefits due to high volume of short-term loans, shortfall in equity releases in the initial years as well as in monetisation of assets.

The findings come at a time when Air India is working on reviving its financial fortunes even as concerns persist in certain quarters about the viability of the carrier. While the airline has achieved a surplus over its variable cost and all services recovered their fuel costs, the auditor said this could be attributed largely to the sharp fall in air turbine fuel prices.

"The company is yet to recover its total cost of operation," it added.

The financial plan was intended to restructure accumulated working capital loans worth Rs 22,157 crore as on March 31, 2011. "It was assumed that with the implementation of turnaround plan, additional revenue would be generated which coupled with rationalisation of costs, would limit the cash credit requirements of Air India Ltd at Rs 3,645.87 crore in future," the report said.

However, the auditor said short-term loans stood at Rs 14,550.88 crore at the end of March 2015, mainly on account of lower revenue generation.

"The high volume of short-term loans had largely eroded the benefits of the financial restructuring carried out under FRP," it noted.

Touching upon rationalisation of staff costs, the apex auditor said the practice of hiring temporary manpower should be reviewed. "Air India Ltd should also rationalise costs on Staff on Duty (SOD) travel, related allowances and hotel expenses in positioning the staff," the report said.

The performance audit on 'Turnaround Plan (TAP) and Financial Restructuring Plan (FRP) of Air India Ltd' covered the period from 2010-11 to 2015-16.