COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Caretaker govt decides to allow Indian Airlines to tap capital market

In a major -- and controversial -- decision to privatise the government-owned Indian Airlines, the Cabinet Committee on Economic Affairs today cleared a proposal to implement the Kelkar Committee report by allowing the company to raise funds from the capital market.

Announcing the decision, an official spokesperson said Prime Minister Atal Bihari Vajpayee chaired the meeting this afternoon. The government has agreed to release Rs 3.25 billion towards equity of the main domestic airline. The airline has also been allowed to mobilise funds from the capital market through initial public offering or any other modalities available for restructuring as recommended by the Kelkar Committee.

The move has sparked controversy from the word go.

The opposition took the stance that a caretaker government should not take important decisions.

The step would enable Indian Airlines to access capital market to meet the cost of induction of fresh aircraft as well as part privatisation by dilution of the government equity, the spokeperson said.

The CCEA, which discussed the recommendations of the Vijay Kelkar Committee (constituted in 1995 to examine the reasons for losses by the domestic carrier and formulation of a turnaround strategy for the company), was of the view that injection of the substantial public equity would have to be balanced by a similar injection from the government. This would also bolster public confidence, which is very crucial for retaining its market share, the CCEA noted.

The present share capital of Indian Airlines (Rs 1.05 million) is too slender for an aviation company of its size, the CCEA said.

The Kelkar Committee had recommended a two-phased financial strategy, which includes selling of more than 40 per cent equity to the public. It had suggested that the government can hold upto 40 per cent of the equity while around 10.4 per cent equity can be held by Indian Airlines' employees.

The Kelkar Committee also recommended fleet planning, route rationalisation and human resource management.

The timing of public offer, or any other mode of reducing government holding in the company, will be decided by the company.

In yet another major decision, the government approved a further moratorium of two years on payment of outstanding dues by Indian Airlines in view of the serious liquidity position.

Indian Airlines was in the midst of financial crisis, when the merger of Vayudoot Limited was announced in May 1993. This has also added to its mounting losses and further worsened its working capital deficit.

The company had earned a revenue of Rs 25.22 billion by carrying 6.36 million passengers during 1997-98.

UNI

Business news

Business archives