Air India’s unsuccessful efforts to restructure its debt, with both the Centre and lenders unwilling to back its various proposals, may have finally spurred the Cabinet to take the decision to privatise the national carrier.
Documents reviewed by The Hindu show that attempts by the airline to rejig its debt failed to convince the decision makers in the government at various levels, including the highest.
For instance, Prime Minister Narendra Modi’s office was hesitant about treating the government’s equity infusion into the national carrier as a grant, while the Finance Ministry was reluctant both to provide a guarantee fee for further borrowings as well as for slashing the fee payable to the government for securing Air India’s existing loans.
Air India has outstanding debt of about ₹52,000 crore, of which about Rs 22,000 crore is aircraft loan and the remaining is its working capital loan and other liabilities.
Lack of conviction
The government’s lack of conviction about the viability of proposals to restructure Air India’s debt was evident at the last two meetings of the Oversight Committee, which was monitoring the carrier’s turnaround and financial restructuring plans, the minutes of the committee’s meetings, on May 3 and January 25, show.
The committee, originally set up in 2012 by the United Progressive Alliance (UPA) government, is chaired by the Civil Aviation Secretary RN Choubey and includes representatives from the Finance Ministry, Air India and State Bank of India’s investment banking arm SBI Capital Markets.
Air India had requested the Finance Ministry to reduce the guarantee fee charged to secure its loans and bonds in the form of external commercial borrowings (ECB) and non-convertible debentures (NCDs). “The ministry of finance is not supporting the waiver or reduction as it could have possible repercussions,” a joint secretary in the Civil Aviation ministry informed the Oversight Committee on January 25.
Air India is required to pay an annual guarantee fee of 1.2% of the outstanding ECB loans, 1% for NCDs and 0.5% for pending loan taken for aircraft acquisition.
Air India had sought a cut in the guarantee fee to 0.5% of outstanding loan amount for all its borrowings. As of now, the national carrier is required to pay ₹800 crore as guarantee fee, a senior AI official said. The then Economic Affairs Secretary Shaktikanta Das had rejected any waiver of the guarantee fee, the Oversight Committee was told at its May meeting. In contrast, the UPA government had waived AI’s guarantee fee worth ₹548 crore in 2007-08.
While the Finance Ministry had agreed to AI’s proposal of converting the equity infusion of about ₹4,000 crore, related to aircraft loans and NCDs, into grants, the “PMO raised certain observations and requested Ministry of Finance to examine the proposal afresh,” a Finance Ministry official told the committee on May 3.
Air India’s proposal to secure the NCDs worth ₹10,500 crore it wanted to issue to refinance its long-term working capital loans at a lower cost also didn’t find favour with the Finance Ministry.
The lenders’ aversion to AI’s proposals may have been the last nail.
Air India CMD Ashwani Lohani, who had met SBI Chairman Arundhati Bhattacharya and bank chiefs “with a request to reduce their interest rates from the current rate of 10.05%” seems to have failed to win any concessions.
“It was indicated that unless Air India is able to reduce its interest cost, it would not be able to come into net profits,” according to the minutes of the meeting held in May.
