New Delhi, Aug 4 (IANS) In a bid to pump cash into the financially-troubled Air India, the government Thursday cleared a Rs.1,732 crore package for the flag carrier, that was struggling even to pay salaries to its staff.


The decision was taken at a meeting of the federal cabinet here, presided over by Prime Minister Manmohan Singh, who had assured parliament a day ago that swift steps will be taken to help the carrier clear the backlog in the wage bill.

The package calls for Rs.1,200 crore as equity and Rs.532 crore as the fare for VVIP travel and evacuation services rendered by the airline, so that the carrier can meet both its immediate needs and also raise funds on its own for its other operational and fleet expansion programme, official sources said.

"The cabinet committee on economic affairs (CCEA) today (Thursday) approved a further equity infusion to the tune of Rs.1,200 crore in Air India," the CCEA said in a statement.

The balance of Rs.532 crore was also cleared by CCEA for the payment of VVIP travel and other services rendered by airline, senior Air India official told IANS.

The cabinet statement further said that the infusion of fresh equity would not only provide relief to the cash-strapped airline but also preclude it from further borrowings from the market.

"As Air India is passing through critical financial crunch, the equity induction would not only ease the cash flow situation of the company but would also preclude borrowings from the markets at high costs," the statement said.

The statement also cited that the current paid-up equity of the airline was not sufficient for a company of its size.

"Air India's present paid up equity capital is not sufficient for an aviation company of its size. The company is currently struggling to address costly legacy assets, a weakening revenue stream and high cost structure resulting in rising liabilities," the statement added.

The decision by the CCEA came after the group of ministers (GoM) led by Finance Minister Pranab Mukherjee, which was set-up to look into revival of Air India, gave in principle clearance to the payment of the VVIP fare to the airline.

"This (decision) was taken by CCEA after the GoM gave the proposal to grant Rs.532 crore to the airline. The fresh equity was asked by the civil aviation ministry for Air India to cover the current operational requirement of the airline," the Air India official said.

On Wednesday, the prime minister admitted in parliament that national carrier was facing "serious difficulties" but added that the government would find ways to pay pending dues to its employees.

"That Air India is in serious difficulties is an open secret," Manmohan Singh told the Lok Sabha, intervening during the question hour.

The government was asked what it was doing to pull the national carrier out of the financial crisis and pay its employees their salaries pending since June and performance-linked incentives pending since May.

"Air India doesn't have resources to pay the salaries. But the government will find the ways and means to pay the wages of Air India employees soon," the prime minister replied.

Currently, the airline expects a fresh equity infusion of Rs.1,200 crore followed by dues of around Rs.530 crore for operating VVIP flights. The airline is laden with a cumulative debt of Rs.40,000 crore it incurred over aircraft acquisition and as short-term loans to maintain its operations.

The cash-strapped carrier is also seeking a total infusion of Rs.17,000 crore, which includes Rs.5,000 crore for this fiscal alone.

Earlier, the government had infused Rs.4,000 crore in the previous two fiscals.