“The finance ministry has given us in-principle guarantee to raise Rs 2,000 crore as short-term loan from banks for which we expect the paper work to be completed very soon,” confirmed a senior official to FE. “The loan will be paid back once the infusion from the government comes through,” the official said, adding that equity infusion is now likely only in the next fiscal.
Banking sources confirmed that five PSU banks will lend out the Rs 2,000 crore to Air India at an average cost of close to 12%. However, large lenders like State Bank of India and Central Bank of India will not be part of the consortium as they already have significant exposure to the airline.
While bank funding may partly substitute the funds that AI was to receive from the government, it will further stretch the airline's highly leveraged balance sheet.
“There will be additional interest liabilities of about Rs 300-350 crore as a result of the short-term loan. We have already requested the government to take cognisance of this when they release funds,” added the official.
The Cabinet had approved a Turnaround Plan (TAP) in 2012 for the state-owned-airline under which the government is to infuse over Rs 30, 000 crore in the airline over a period of nine years starting from 2012-13.
However, just 18 months after that plan was approved, Air India has recently gone back to the government, asking it to re-evaluate the TAP, said the official.
The TAP, which was conceived in 2011, took into account the then value of rupee – which was close to Rs 45 /$ – as compared to the current Rs 61-62/$ . This along with a hike in ATF costs – which has increased by over 15% since 2012 – has adversely affected the airline.
Air India's currently earns about 40-45% of its revenue in dollars terms while 65% of its expenditure is in dollars. “Since 2011, we have lost around Rs 250 crore a year on the account of rupee depreciation, while the rise in the ATF costs has affected us by another Rs 350-400 crore during the last two years,” the official said.
“This left us with no options but to ask the government to re-evaluate the TAP,” he added.
Air India currently has over Rs 39,000 crore debt. This includes long-term loans of Rs 17,000 crore, short-term working capital loans of Rs 4,000 crore and aircraft-related debt of Rs 18,000 crore.