Budget 2015 clips struggling Air India's wings

MUMBAI: The government has proposed to allocate Rs 2,500 crore to Air India in 2015-16, giving the ailing state-run carrier less than half of what it infused in the current fiscal.

The proposal in the budget, which has earmarked less than 60% of the amount sought by Air India, will impact cash flows and debt repayments at the carrier, a senior executive said. Industry experts welcomed the move, though, saying it's about time the government stopped cash handouts to the airline.

"Air India had asked for Rs 4,277 crore as plan outlay for 2015-16 and has been given only Rs 2,500 crore. For the current fiscal year (2014-15), the government put in Rs 720 crore less than what was earlier decided. We thought that would be adjusted in the allocation for 2015-16, but what has happened is quite a different story,” said the executive, requesting not to be named. The airline needs Rs 2,400 crore for loan repayment alone this year, he said, adding, "Of course, there will be some savings from lower jet fuel prices, etc., but I am not sure that will be enough."

The drastic reduction in budgetary allocation to Air India "shows that the party is gradually coming to an end”, said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.

"The government has no business flying planes, and then making taxpayers pay for its losses. The ministry of civil aviation should initiate steps for complete exit from Air India by divesting the shares to a strategic investor or to the Indian public," said Dubey. Air India has been making losses since 2007, when it was merged with domestic state-run carrier Indian Airlines. Since then, it has been banking largely on cash handouts to shore up its finances.

Lately, however, the carrier has managed to cut some of its losses although it's still a long way off from profitability. Air India's estimated net loss for the ongoing fiscal is Rs 4,900 core, a fifth less than in the last year.