With Air India announcing plans to become operationally profitable in four years, nearly 20 of its lenders today expressed support to it indicating that they were willing to consider recasting its entire Rs 40,000 crore debt.
At a three hour-long meeting here, the airline management made a detailed presentation on the plan saying it has set a target of enhancing revenues by Rs. 5,000 crore and slash costs by Rs. 4,000 crore per annum.
Air India CMD Arvind Jadhav shared with top executives of banks details of the turnaround plan and the financial re-structuring plan which aims to make the cash-strapped carrier operationally profitable by 2015, senior officials said.
The bankers would form “a small group from within the consortium to move forward in this matter”, they said.
The airline is saddled with a debt of about Rs. 40,000 crore of which Rs. 18,000 crore is working capital loans taken from a consortium of banks, while the balance Rs. 22,000 crore worth of loans is towards payment of new aircraft ordered.
“It was the first meeting that all the lenders had with the AI management. SBI Caps and Deloitte made a presentation and we have to get back to them with our views.
Hopefully, we will have the second meeting in 10 days,” Bank of Baroda (BoB) General Manager Arun Tiwari told reporters.
SBI Caps was mandated last year by a consortium of nearly 10 lenders to thrash out a turnaround strategy for the ailing national carrier.
Asked about their response, another BoB officer N. Ramani said “almost 90 per cent of the proposals are fine with us and we are keen that the airline is back to good health.”
On whether the proposal is to recast only the Rs. 18,000 crore working capital loan, he said “this is not a piecemeal proposal. Whether working capital or other loans, these have to be serviced. We have no problem in restructuring the entire Rs. 40,000 crore debt of the national carrier because despite challenging times, they have not defaulted on a single payment to us so far.”
Observing that many more rounds of meetings would be held between the bankers and the airline management, Punjab & Sind Bank General Manager H.P. Singh said “once we lenders and the company management agree on the final proposal, it will go to the government and RBI and then we will have the turnaround plan rolling”.
Seeking the support of the consortium of bankers, Mr. Jadhav said the turnaround plan included equity infusion, conversion of short-term loans to long-term ones, reduction of interest rates, operationalisation of MRO and Ground Handling subsidiaries and resolving integration and merger issues.
The meeting was also attended by Civil Aviation Ministry Joint Secretary Prashant Sukul and officials of SBI Caps, aviation consultancy firm Deloitte and Syndicate and other banks.
The bankers’ support to Air India’s rejuvenation strategy would lead to expected approvals from RBI and the principal stakeholder - the government.
Mr. Jadhav had yesterday told PTI that “if we have to service our debt on our own, then we have to work with the financial institutions. The government and the FIIs have to be on the same page”.
The ailing national carrier had last month accepted a corporate debt restructuring package prepared by SBI Caps and vetted by Deloitte. The package was approved after several rounds of consultations with banks and the government.
Once finalised, the plan would be submitted to RBI for approval.
If the RBI agrees to the proposal, Air India will be able to reduce the interest rate on its working capital loans to 6-6.5 per cent from the present 12 per cent, thereby considerably reducing its debt servicing burden.
The airline has so far raised loans worth around Rs. 14,000 crore to fund aircraft purchases and is currently in the process of raising more money. The working capital loan was mostly extended by state-run banks like SBI, PNB, IDBI Bank and Syndicate Bank.
The working capital debt of Rs. 21,000 crore was borrowed at an interest rate of 12 per cent. The airline’s annual interest payment was Rs. 1,800 crore on a debt of Rs. 40,000 crore – Rs. 21,000 crore being working capital debt and the rest low-cost debt taken primarily to buy aircraft.
The airline has accumulated losses of over Rs. 15,000 crore. The carrier lost Rs. 2,226 crore in 2007-08, Rs. 7,189 crore in 2008-09, and Rs. 5,551 crore in 2009-10.
In the latest budget, the government has announced it would infuse Rs. 1,200 crore in the next financial year. Till now, the government has injected Rs. 1,200 crore and Rs. 800 crore in two tranches in 2009-10, raising the national carrier’s equity base to Rs. 2,145 crore.