NEW DELHI -- The Indian government is making further cash injections into Air India conditional on improved efficiency as it looks to boost its chances of finally finding a buyer for the troubled flag carrier.
Saddled with debt of some 550 billion rupees ($7.69 billion) in debt, Air India has been outmaneuvered by private carriers in India's intensely competitive aviation market. High fuel prices and a weaker rupee have added to woes across the sector, with private carrier Jet Airways in the midst of its own financial crisis.
In the case of Air India -- which employs 17,000 people and has a fleet of 160 aircraft -- simply servicing its debts has become a drag on earnings. An attempted sale last year failed to attract buyers.
There are signs of at least modest improvement.
Air India's revenue from passengers topped 55 billion rupees last October-December, an increase of 20% on the year. It has also taken various cost-cutting measures, such as stocking food for the return journey on several international routes, as buying food abroad is more expensive.
These are likely to be welcome signs for the government. In December, it sought parliamentary approval for a capital infusion of 23 billion rupees into Air India, on condition that the airline meet such goals as higher levels of operational efficiency, creating distinct business strategies for each of its core businesses, and improving the quality of its workforce. According to sources, the airline has satisfied enough of those requirements for the injection to go ahead.
Debt continues to rise, however. A senior government official recently admitted that New Delhi has "no choice" but to continued propping up the airline until a buyer can be found.
"If Air India is not to be shut down, then we have to provide the money," the official said.
Budget documents released on Feb. 1 show the government will also provide 39 billion rupees for servicing debt transferred to Air India Asset Holding -- 13 billion rupees in the current financial year, ending March 31, and 26 billion rupees next fiscal year.
This follows New Delhi's decision last November to transfer 290 billion rupees of the airline's debt to Air India Asset Holding to relieve the burden on the carrier.
The flag carrier's troubles -- and history of government support -- stretch back years.
As of last August, the airline had received over 270 billion rupees in support under a 10-year turnaround plan approved by the previous United Progressive Alliance government in 2012. The plan provides for a total equity infusion of 302 billion rupees into the airline through 2021.
But keeping Air India afloat is only the first step for the government. It must also make the airline appealing to buyers.
When the government of Prime Minister Narendra Modi attempted last year to sell the airline along with two-thirds of its debt -- which stems mainly from aircraft purchases -- the offer found no takers.
Potential buyers were apparently put off not only by the airline's massive debt, but also because the state sought to retain a 24% stake, which would give it a presence on Air India's board and require its consent on important resolutions.
Another round of bidding is likely to occur after elections expected by May, which means a decision on a sale could fall to a new government, sources familiar with the matter say.
For this next round to succeed, New Delhi will have to reduce Air India's remaining debt and make clear the government will "have no stake or have a very small stake in the airline," a person familiar with the matter said.
Amitabha Roychowdhury, an independent aviation analyst in New Delhi, says there is still time to work toward making Air India attractive to buyers "as nothing will happen before elections." But, he added, the bureaucrat-run airline must bring in aviation experts to guide it toward a revival and attract potential investors.
In addition to providing financial support, the government is also looking to raise money by selling Air India subsidiaries that handle engineering, transport and other services, as well as noncore assets such as land and buildings.
Despite rapid market growth, India's airline industry has faced rising pressure on profit margins from high fuel costs and intense price competition. The depreciation of India's currency against the dollar has also driven up operating costs, the government says.
The troubles are not confined to Air India. Privately run Jet Airways, India's second-largest airline by market share after IndiGo, has a debt of over 80 billion rupees.
Total passenger traffic to, from and within India during April-November 2018 grew by around 15% on the year, compared with about 6% globally, according to a report presented in January at a government-sponsored aviation summit in Mumbai.
By 2040, this total passenger traffic is expected to rise nearly sixfold to around 1.1 billion from 187 million last fiscal year.