Thursday, 28 July 2011

Air India: out of cash

The central government lead India's leading Airline company "Air India" tops the list of most debt by any airline in the aviation sector all over the world. The Airline is even struggling to generate operational revenue.

Air India will raise a fresh loan of $832 million (Rs 3,745 crore) to fund the purchase of Boeing 787 planes, even as it is struggling to meet its current debt obligations.

The first of these fuel-efficient planes is due for delivery in October and Air India is the plane's second customer after ANA of Japan.

 Air India has invited bids for the delivery financing and hopes to secure US Exim Bank guarantee for the funding. It has placed an order of 27 Boeing 787 Dreamliners and expects to receive seven planes of this type by March 2012.
"We have approached the US Exim Bank for its approval. The loan will have a government guarantee. We hope to secure an interest rate of 50-70 basis points over Libor. This amounts to little over one percent,'' said a senior AI executive.

The loan will cover 85 per cent of plane's purchase cost and will be for tenure of 12 or more years. Air India will deploy the 787 on European and Asian routes and hope to regain market share.

Along with the debt route, the carrier is also examining other options such as sale and lease back for the Boeing 787 planes. Typically airlines choose to go in for a sale and lease back mode to trim their debt costs.

According to the AIr India’s bid document it will look for a lease period of 10-12 years. "We are examining all financing options,'' the executive said.

Air India has debt of over Rs 40,000 half of which is working capital debt. Annually AI is paying Rs 3200 crore to service its debt.

Payments of Rs 4,489 crore are overdue and the airline pointed out to the government that unless steps are taken to revive financial health, the airline would default on interest payments.

On Monday the Group of Ministers met to discuss equity infusion and VVIP flight dues to Air India.

The airline's debt recast and turn around plan will be discussed separately next week. Air India has sought an additional equity of Rs 6600 crore this year but has so far received an assurance of Rs 1200 crore in equity.

Additionally AI is seeking Rs 1173 crore in dues for VVIP and evacuation flights. Of this sum Rs 800 crore is being claimed for maintenance of the 3 Boeing 747-400s which are used for VVIP flights. The balance are chartering charges. The government has agreed to release Rs 450 crore this year based on AI's claim for Rs 800 crore.


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