India's debt-laden national carrier Air India, will receive an equity infusion of INR67.5 billion rupees (USD$1.3 billion) in the current fiscal year and will spin-off two of its units as part of a financial restructuring plan approved by the Indian cabinet.
The airline will also go ahead with a plan to buy 27 Boeing 787s, which will be on a lease and saleback basis, civil aviation minister Ajit Singh told reporters.
The new financial lifeline has been approved after high fuel costs and intense competition severely impacted the country's aviation industry, leaving only one of the six airlines in the country profitable.
"There are many checkpoints between now and then. If the airline meets some milestones, then only money will be released," Singh said.
"A committee of officers will monitor this with the aviation ministry."
The cash infusion this fiscal year will include INR12 billion rupees approved last year. This will be part of the government's total infusion in Air India to the tune of INR300 billion rupees (USD$5.8 billion) by 2020, Singh added.
The new plan will also lead to Air India spinning off its transport and maintenance, repair and overhaul (MRO) units and moving 19,000 staff to them.
The eagerly awaited restructuring plan will also include loans worth INR74 billion rupees converted into sovereign guaranteed non-convertible debentures.
Singh also said lenders to the carrier have approved the conversion of short-term loans worth INR110 billion rupees into long-term loans.
All of these measures should help the carrier make a cash profit by 2018, Singh said.
However, the cabinet deferred a much-awaited decision to let foreign airlines buy a stake in local carriers, a move that will likely benefit the ailing Kingfisher Airlines.
It is expected to take up the issue next week, Ajit Singh said. "All FDI proposals have to be cleared by the home ministry."
Under current rules, foreign airlines are barred from buying stakes in domestic carriers, although foreign investors are allowed to hold a cumulative 49 percent.
"Ownership, operation controls will remain with Indian carriers after FDI is cleared... I don't see any reason why Air India should not participate in FDI because it is open to all airlines," Singh said.
"But Air India will remain under government control."
Indian carriers are laden with USD$20 billion in debt and probably lost USD$2.5 billion in the fiscal year that ended in March, according to the Centre for Asia Pacific Aviation, a consultancy.
National carrier Air India, which has paid salaries to its staff until February, accounts for the bulk of the industry's losses.