The Reserve Bank of India (RBI) has declined to provide any special dispensation to Air India for restructuring its debt under the scheme for sustainable structuring of stressed assets (S4A), two people aware of the development told FE. According to one of the sources, the national carrier had requested RBI to allow banks treat a majority of its debt as sustainable since they were loans guaranteed by the government. “The RBI has denied its request and we believe it is because the central bank does not want other public sector enterprises to line up with similar demands,” he said.
According to a senior official of Air India, the airline, at the moment, is not looking for an S4A recast and hence the central bank’s decision is not that significant.
While efforts have been made to revive the airline, Air India has not reported a profit in at least a decade; in 2015-16 it posted an operating profit of R105 crore and reduced its net loss to Rs 3,837 crore compared to Rs 5,859 crore in FY 14-15. In February, a consortium of lenders had shelved the airline’s proposal to recast Rs 9,000 crore of long term loans by converting half the amount into equity. The national carrier owes banks a whopping Rs 46,000 crore and had asked that some of this be swapped for equity.
In the first nine months (April to December) of FY17 the full service carrier increased its passenger revenues by just 2.85% year-on-year but reported a jump of 60% y-o-y rise in EBITDAR (earnings before interest, tax, depreciation, amortisation and rentals) to Rs 3,412 crore during the same period.
The ministry of civil aviation (MoCA) has been actively exploring ways to reduce the national carrier’s debt and has been satisfied with the improvement in operational parameters in the last two years. Accumulated losses at the end of March, 2015 were at Rs 37,386 crore, more than 50% of its net worth at the time. The carrier’s annual interest outgo is around Rs 4,500 crore. In the three months to June, 2016, Air India reported an operational loss of Rs 246.14 crore against a profit target of Rs 87.28 crore. Since then yields have been under pressure in a very competitive environment while the cost of aviation turbine fuel has risen driving up costs.
The S4A scheme has been viewed as an improvement over the strategic debt restructuring (SDR) plan since the promoters remain with the firm; the SDR envisaged bringing in a new set of promoters. The S4A scheme is also more lenient since bankers can take an effective haircut of 50%.The turnaround plan (TAP) projects an operating profit of Rs 1,086 crore in 2016-17 on revenues of Rs 22,206 crore and a net loss of Rs 1,989 crore. The airline needs to repay Rs 14,000 crore worth of aircraft-related debt by 2020-21; it has repaid a part of its short-term borrowings with proceeds from the sale and lease back of the wide-body Dreamliner aircraft.
Shayan Ghosh & Malyaban Ghosh