Air India has approached the government asking it to guarantee non-convertible debentures (NCD) worth `10,500 crore that it wants to issue against long-terms debt on its books. Converting loans into NCDs would bring down the interest rate by about 2%, senior executives at the airline explained. The country’s national carrier also plans to use the proceeds from a sale and lease back of wide-bodied aircraft to retire Rs ,500 crore or about a fifth of its short-term debt.
As a consequence of some of these measures, the airline is expected to turn cash positive by 2017-18 rather than by 2019-20 as was envisaged earlier. Moreover, it is expected to report net profits by 2019 -20 ahead of the time frame of 2021-22 built into the original TurnAround Plan (TAP). A new TAP says Air India will induct 100 aircraft by including narrow-bodied planes from Airbus, Boeing 787, 777 and ATR aircraft by FY 20-21 indicating towards a significant increase in capacity in the next four years.
Going by the current performance the airline is expected to repay all the aircraft related loans by 2021.
At the end of March 2016, Air India’s total borrowings stood at Rs 50,000 crore of which Rs 30,000 crore are working capital loans. The remaining Rs 20,000 crore was borrowed to buy aircraft.
The sale and lease back arrangements for nine Boeing 787 aircraft are expected to fetch the airline an estimated 900 million dollars, senior executives told FE. The executives added the repayment of short -term loans and some bridge bridge loans should happen in the current year.
“With working capital loans now priced over the marginal cost of funds based lending rate (MCLR), the interest rate on these will come off by about 50 basis points,” they said. “Air India’s annual interest liability is about R4,500 crore. The conversion of long-term debt into NCDs can help lower the interest rate by about 2-2.5% since these will be backed by government security,” the executives explained.
Meanwhile, the TAP for the airline has been reworked by SBI Caps since several targets relating to the monetisation of assets, acquisition of aircraft and separation of subsidiary companies (engineering, maintenance and ground handling) have not been met. Originally, Air India was supposed to add 21 narrow body aircraft and earn Rs 500 crore by monetising assets in India and overseas. However, only seven narrow body aircraft have been inducted since 2012 due to aircraft not being available. Moreover, the airline has managed to earn only Rs 100 crore by monetising assets.
Besides, the revised TAP also factors in the depreciation of the rupee from Rs 45 per dollar in 2012, when the TAP was conceived, Rs 67 per dollar in the 2016. The new plan has also set a target of Rs 100 crore from sales or lease of assets in the current fiscal and Rs 200 crore in the next two fiscal years. Passenger load factor (PLF) has also been revised to 80% on the international routes and and 85% on the domestic routes.
“We found there were restrictions on the on the end use of some assets and cabinet approval was needed in some cases which is time consuming. There were also certain restrictions from the ministry of urban development. Now we have decided to form a joint venture with NBCC in order to monetise the assets,” said another official.
Due to subdued oil prices and improvement in operating parameters like turn around time and PLF, the government run airline has made an operating profit of around R8-10 crore in FY 16 for the first time after the merger. As a part of the turn around plan the the union government has infused funds worth Rs 22,000 crore in the airline since 2012.