1. Banks reject Air India’s Rs 9,000 cr loan recast, say acquiring equity in airline would be a ‘burden’

Banks reject Air India’s Rs 9,000 cr loan recast, say acquiring equity in airline would be a ‘burden’

A consortium of lenders to the loss-making Air India has shelved the airline’s proposal to recast R9,000 crore of loans by converting half the amount into equity.

By: and | Published: March 3, 2017 6:42 AM
Air India, airline, carrier’s annual interest, turbine fuel, strategic investor, sustainable structuring A consortium of lenders to the loss-making Air India has shelved the airline’s proposal to recast R9,000 crore of loans by converting half the amount into equity. (Source: Reuters)

A consortium of lenders to the loss-making Air India has shelved the airline’s proposal to recast Rs 9,000 crore of 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. However, senior bankers told FE, Air India had been informed this would not be feasible. “We are not keen on acquiring an equity stake in the company, it would be a burden on us,” the banker added.

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 but a net loss. Accumulated losses at the end of March 2015 stood at R37,386 crore, more than 50% of its net worth at the time. The carrier’s annual interest outgo is around R4,500 crore. The airline had asked banks to recast long-term debt of R9,000 crore via the scheme for sustainable structuring of stressed assets or S4A. However, lenders appear to be unsure about the future prospects for the airline and are unwilling to be pressured into holding equity.

That is not surprising since in the three months to June 2016, Air India reported an operational loss of R246.14 crore against a profit target of R87.28 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. An aviation ministry official, who did not wish to named, conceded the proposal had been shot down by lenders at a meeting held last month. He said the government would work to reassure lenders the airline was being revived.

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“The stress in the sector has made banks apprehensive of becoming a strategic investor in the airline,” he said. The turnaround plan projects an operating profit of R1,086 crore in 2016-17 on revenues of R22,206 crore and a net loss of R1,989 crore. The airline needs to repay R19,000 crore by 2020-21 crore; it has repaid a part of its short-term borrowings with proceeds from the sale and lease back of the wide-body Dreamliner aircraft.

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