Struggling airline Air India Ltd. will receive a 40 billion rupee ($800 million) cash infusion from the Indian government under the new federal budget beginning April 1.
The cash infusion for the struggling airline is less than the expected 55 billion rupee infusion many predicted, according to Aviation Week. Air India has never turned a profit since its merger with the national airline, Indian Airlines, in 2007 and had amassed losses of 181 billion rupees by March 31, 2010.
Air India has recently been pursuing $500 million in discounts and cash from Chicago-based Boeing Co. in compensation for delayed delivery of new 787 Dreamliner aircraft.
The new federal budget has authorized Air India and its competitor Jet Airways to increase their exposure to working capital loans by 25 percent in the coming year due to cost pressures, TravelBiz Monitor reported. The new budget will also allow the airlines to pursue up to $1 billion through external commercial borrowings to allow the airlines to borrow capital at lower interest rates from international lenders. A senior official from Air India reportedly said that the airline would seek the maximum amount of $1 billion.
Even as Air India struggles, the Indian aviation market is rapidly expanding, and Airbus has predicted that the Indian aviation market will require 1,043 new aircraft by 2030 at a cost of roughly $145 billion. India's annual passenger traffic has grown at the stratospheric rate of 7.2 percent, as compared to a world average growth rate of 4.8 percent and 5.9 percent in the Asia Pacific region.
The increased demand for air service is expected to derive from the rapid growth of the Indian middle class buoyed up by the burgeoning Indian economy. If India's economy continues to expand as predicted, despite near term difficulties, Airbus predicts that the demand for domestic air travel in India could grow by as much as 10 percent annually.