Air India's revival hits air pocket

New Delhi: India may need to reassess the amount of bailout funds given to Air India because the state-run carrier has breached loan limits set under a government restructuring plan, causing its finances to be squeezed, the Comptroller and Auditor General of India (CAG) said in a report on Friday.

Heavily-indebted Air India, which was bailed out in 2012 with $5.8 billion of government funding, saw its short-term loans rising to four times the limits laid down in its turnaround plan, the CAG said.

The increase in loans was "due to failure in generating projected revenue, mainly on account of non-achievement of asset-monetisation target, increase in staff costs," the auditor said.

The report, which the government will use to evaluate the progress of Air India's restructuring, said Air India failed to meet its cash-credit limits, leading to short-term loans rising to Rs145.51 billion ($2.18 billion) as on March 31, 2016 against the target of Rs 36.46 billion.

It said the airline should monetise more of its assets faster to reduce its debt burden and speed up the leasing of narrow-body aircraft to improve its performance.

“The company, though aware of the shortage of narrow body aircraft as early as May 2010, delayed leasing of A-320 aircraft,” the report said, referring to Airbus Group’s narrow-body aircraft which is widely used in India.

This resulted in the induction of only five such aircraft by March 2016 versus a requirement of 19, it said.

A spokesman was not immediately reachable for comment.

The Indian carrier also incurred a book loss of Rs 6.71 billion on the sale of five wide-body aircraft, B-777-200 LR, it had bought from Boeing, to Etihad Airways, the report said. The Indian carrier had to agree to the sale at a price significantly lower than the indicative market price after it found no buyers at the market value, it said.

Air India is expected to report a 10 per cent increase in total revenue to about Rs 225.21 billion ($3.38 billion) for the year to end-March compared with a year ago, the ministry of civil aviation said on Thursday.