Insurance News: ASSOCHAM seeks similar treatment to AI, KFA

Life Insurance Corporation of India (LIC) and Employee Provident Fund Organisation (EPFO) subscribing to Rs 7,400 crore debt issue of Air India (AI) as part of the government’s bailout plan for the state-owned airlines, the ASSOCHAM demanded a similar dispensation for the Kingfisher Airlines (KFA) as well.

ASSOCHAM Secretary General D S Rawat said the circumstances under which both Air India and Kingfisher Airlines went down under were almost similar, largely emerging from the demand slowdown, high cost of aviation turbine fuel and other rising overhead costs.

“While Air India deserves to be given a bailout package, there is no reason why Kingfisher Airlines should be treated differently when it comes to lending agencies, banks and even the government organizations,” said Rawat.

LIC and EPFO have taken a decision to subscribe to Rs 7,400 crore bond issue of Air India. The beleaguered state owned carrier is raising these resources to repay short-term loans to the banks from whom it has borrowed Rs 18,000 crore for its working capital needs.

Of Rs 7,400 crore issue, the LIC is subscribing Rs 3,000 crore and EPFO Rs 4,400 crore. On its part, the government has announced Rs 30,000 crore bailout plan to revive Air India.

On the other hand, the Kingfisher Airlines (KFA) is being pressurized by the public sector banks and the tax authorities to recover their dues even though the private sector carrier has been grounded and its staff is in distress.

“Both the private and the public sector companies operate in a similar environment. It is agreed that as the largest shareholder, it becomes incumbent on the government to safeguard its PSUs. But at the same time, the banks and other financial institutions should not discriminate against the private sector firms.

“To the extent additional equity from the main promoters, the UB group is required, we would urge them to bring in these funds so that the lenders’ comfort level is increased,” said the ASSOCHAM.

It said whether it is public sector or private sector money, the resources belong to the nation which should not be allowed to go down the drain. The Satyam Computer is a shining example how the government can effectively intervene and help revive an organization irrespective of its ownership pattern, said the ASSOCHAM.

The closure of KFA has also led to a steep hike in the air fares as the overall capacity has come down.

This has created further complications for the aviation industry which is hard pressed for cash. A steep hike in air fares, also due to high Aviation Turbine Fuel (ATF) cost, has also led to decline in domestic air travel. The domestic air traffic has witnessed a decline of 15.7 per cent in October this year over the same period last year.

The closure of KFA has also led to untold misery to its employees, who are finding it hard to get new jobs in the wake of the industry itself in a big turmoil. Moreover, the enthusiasm over allowing Foreign Domestic Investment (FDI) in the domestic carriers has not found any favour among the global investors.

“After all, even in the global landscape the investment is hard to come. Excepting the airlines of the Middle East, the carriers in most other parts of the world are facing difficult times,” added Rawat.

He also said the answer has to be found largely from within the country. Eventually, all the stakeholders – shareholders, lenders, employees and the consumer would be the gainers if a temporary reprieve is extended to KFA.