Debt-ridden Air India?s plans to raise loans from overseas banks known as external commercial borrowings (ECBs) for both the national carrier and its subsidiary Air India Express, have hit a hurdle, as banks are unwilling to lend to the ailing Indian aviation sector without a repayment guarantee from the Indian government.
?We did not receive as many offers as we had anticipated,? a senior AI official said. ?The date has been extended to June 19, but there is not much interest as of now. If we can?t raise ECBs now, we will try again later in the year.?
The national carrier, 15% of whose 1,300 pilots are on strike from May 14, wants to raise $600 million or R3,330 crore to meet its working capital requirements.
The airline, which received lenders? approval to restructure R18,000 crore out of its R43,000 crore accumulated debt, had invited proposals from banks and financial institutions to help raise ECBs by May 28. However, a lack of proposals has forced the airline to extend deadline to June 19.
Consultants say lack of corporate guarantee could be a reason for foreign banks to stay away from lending to AI, which received government?s R4,000-crore equity infusion in May.
The airline, which lost market share to both Indian private passenger carriers and global airlines, reported R7,853 crore loss for fiscal 2012 ended March. The airline loses were recorded at anywhere between R10 crore and R15 crore daily as it had to cancel flights and rebook passengers after pilots went on strike. It?s accumulated losses are R21,000 crore since its merger with Indian Airlines in 2007-08.
?Overseas banks and financial institutions are staying away from the Indian aviation sector,? a consultant with a global audit firm said while refusing to be identified. ?AI right now faces a number of liabilities, the staff crisis is making the airline bleed money and it faces a long drawn arbitration if the Boeing 787 compensation issue is not sorted out.?
In the Budget 2012-13, the government allowed the aviation sector to raise up to $1 billion in ECBs for working capital needs. Each airline is allowed to raise a maximum of $300 million.
?In such a scenario, it will be very difficult for the airline to raise that kind of money from overseas banks who are being very prudent about whom to lend to,? the consultant added.
Private passenger carriers also find it tough to raise money from overseas banks. In May, India?s largest passenger carrier by number of passengers carried Jet Airways told analysts that it is getting more and more difficult of Indian airlines to borrow from overseas institutions.
?Banks are not willing to lend to Indian airlines because of the reputation of some our rivals,? KG Vishwanath, vice-president (commercial strategy and investor relations), Jet Airways, told analysts during a conference call on May 25.
Jet Airways had to refinance its dollar loans into Indian currency to bring down its debt to R13,100 crore until March 31. However, it pays anywhere between 1% and 1.5% higher interest rates. The airline still has about R8,500 crore to R9,000 crore in foreign currency debt.