Air India, India’s national airline and the 16th largest in Asia, is set to receive a 50 billion rupee ($1.1 billion) bailout from the government conditional on the airline cutting 30 billion rupees ($0.7 billion) in costs and raising revenue by 20 billion rupees ($0.4 billion) over the next two years. Air India has been showing signs of financial distress since 2007 and had accumulated 72 billion rupees ($1.6 billion) of debt by March 2009.

The airline has had other woes lately, being featured in the press because of an in flight brawl between pilots and cabin crew over an alleged molestation of an air hostess and the four-day strike by 400 pilots last month opposing proposed wage cuts, with at least 30 flights being cancelled as a result.

Air India is aiming to cut costs by 13 billion rupees ($272 million) by the end of its fiscal year in six months and is currently restructuring its operations. In March 2009, before the bailout was announced, the airline sold four aircraft carriers for $18.57 million in order to relieve some financial pressure.

Despite its restructuring and cost-optimization, aviation analysts are not optimistic about Air India’s future. Based on its current cash burn rates, analysts believe the government subsidy may disappear before significant improvement is able to be made.     

The bailout still has to be approved by India’s cabinet committee on economic affairs, but analysts point to several other important challenges that Air India will have to overcome in order to survive, including: chronic inefficiency in operations, increase in competitive pressures from the emerging private airline companies, poor aircraft utilization, and an inflated workforce that will cause problems, such as last month’s strike, whenever a pay cut is introduced.