Restructuring proposal for the Indian Airlines, based on the recommendations of the Kelkar Committee, was cleared by the Cabinet Committee on Economic Affairs (CCEA) here on Monday.

The CCEA has simultaneously extended the moratorium on payment of outstanding dues by Indian Airlines by two years in view of serious liquidity position. IA, it may be recalled, was in the midst of financial crisis at the time of merger with the Vayudoot in May 1993. The merger added to its losses of IA and further worsened its working capital deficit.

The restructuring proposal, approved by the CCEA, is expected to enable the IA to access capital market to meet the cost of induction of fresh aircraft as well as partprivatisation by dilution of government equity.

After the initial public offer, the government equity in the airlines will go down to 49 per cent. As per the proposal 10.6 per cent equity will be reserved for employees and the remaining 40.4 per cent would be offered to public.

The company's present share capital of Rs 105 crore is considered slender for an aviation of the size of Indian Airlines. According to an official spokesperson, injection of the substantial public equity would have to be balanced by a similar injection from the Government. This, it was pointed out would be crucial for domestic carrier to retaining its market share.

The restructuring of the Indian Airlines, it based on the recommendations of the committee headed by the then petroleum secretary Vijay Kelkar. The committee had suggested two-phase turn around strategy for the airlines in the context of the competitive market environment.

In the first phase, the committee recommended financial restructuring, which included capitalinjection of Rs 922 crore in the form of compensation, subordinated loan, equity and contribution by Indian Airlines and its employees. Of this, Rs 475 crore was to be provided by the Government. The CCEA, it may be mentioned, has agreed to inject Rs 325 crore in the airlines.

In addition to financial restructuring, the committee wanted the airline to focus on issues like fleet planning, route rationalisation and human resources management in the first phase.

In the second phase, the company would make an initial public offer to mobilise funds from the market. The committee wanted that in the aftermath of the public offer, the government equity should be reduced to 49 per cent. It suggested that 10.6 per cent should be reserved for the employees and the remaining 40.4 per cent be offered to public for subscription.