September 6th, 2009 by admin

Air India plans to go low-cost to survive, AS – Yahoo! India News

MUMBAI, India (AP) India's loss-making national airline Air India said Friday it would transform itself into a budget carrier for domestic flights and float an initial public offering by 2012 as part of a three-year turnaround plan. Air India, which is owned by the government, is in negotiations with New Delhi over how to stave off financial collapse.

The airline has said it lost about 40 billion rupees ($800 million) in the fiscal year ended March 31 and suffers a heavy debt burden from buying new aircraft. “There is a cash-flow problem,” chairman Arvind Jadhav told reporters.

“The magnitude of our debt burden and rising cash deficit in a falling market necessitates aggressive financial restructuring,” he added. The airline plans to retrofit 10 of the 57 planes now plying domestic routes to all-economy class aircraft by September, said spokesman Jitender Bhargava.

Long-term, the goal is to make 70 percent of domestic flights work on a low-cost model under the brand Air India Express, which currently offers budget international flights. Bhargava said the airline also plans to trim costs and boost revenues by spinning off subsidiary cargo, engineering, and ground handling operations, which would also absorb staff.

Layoffs are not planned, he said. Air India officials said they, along with the government, were now working to quantify how much external funding might be needed.

In the last year, Indian airlines have rapidly shifted to a low-cost model as they battle high fuel prices, too many planes and dwindling passenger counts. By year's end, about three-quarters of all domestic flights will be low-cost, said Kapil Kaul, chief executive of the India unit of the Center for Asia Pacific Aviation, an independent aviation research group.

Air India had no choice but to follow suit, he said. But he said the state carrier's costs are so high thanks in large part to the $800 million plus annual outlay for its bloated roster of 31,000 permanent and 15,000 contract employees that it's hard to understand how lowering fares would prevent losses.

Having a government company fire people is not politically viable in India, he added. Air India now has $3.5 billion in debt, which is expected to rise by $7 billion in the next three years as the carrier completes the purchase of 111 new aircraft, he said.

Interest payments for the next three years are expected to be $2 billion, he said. He said that in June, Air India asked the government for $1 billion in cash and $2 billion in low-interest loans.

“With the kind of cost structure they have, starting low-cost operations means more red ink will chase you,” he said. ___ Associated Press Writer Muneeza Naqvi in New Delhi contributed to this report.

ERIKA KINETZ AP Business Writer

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