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Government today approved a Rs 768 crore proposal to hive off engineering and ground handling services of Air India into two wholly-owned subsidiaries as part of its turnaround plan.

A meeting of the Union Cabinet, chaired by Prime Minister Manmohan Singh, cleared the proposal to create the two subsidiaries -- Air India Engineering Services Limited (AIESL) and Air India Transport Services Limited (AITSL), an official spokesperson said.

The green signal came two years after Air India Board approved operationalisation of the two subsidiaries and submitted a note to the Civil Aviation Ministry to get the Cabinet nod. The Ministry had cleared the proposal in April this year.

With today’s decision, Air India would begin the process of transferring the assets and manpower to AIESL and AITSL, which would be treated as separate profit centres.
AIESL would carry out Maintenance, Repair and Overhaul (MRO) business, not only for Air India but other airlines too and tap the potential of nearly USD 1.5 billion MRO business in the Asia-Pacific Region.

At present, Indian carriers have to send most of their planes to Europe and even Dubai and Singapore to get them repaired or for mandatory checks.

Air India would provide AIESL an equity of Rs 375 crore for capital expenditure over a period of three years, sources said, adding that this would be based on equity support received by the national carrier from the government. The subsidiary is projected to make profits in five years. About 7,000 employees of Air India would migrate to it.

AITSL, which would carry out the ground handling services, would be provided equity worth Rs 393 crore by Air India over 12 years. About 12,000 employees will shift to it. This new subsidiary is projected to make profits from the current financial year itself, the sources said.

Air India has a total staff strength of about 29,000. It’s aircraft-manpower ratio last year was 263 as against 150 in Jet Airways, 111 in Kingfisher and 102 in Indigo.

With the hiving off, this ratio is expected to come down considerably, the sources said.

Air India, which reported an estimated loss of Rs 7853 crore in 2011-12, has an accumulated loss of Rs 20,000 crore over the past five years. Under the government-approved turnaround and financial restructuring plans, a total equity infusion of Rs 30,000 crore has been planned till 2021.