In an attempt to clean up its balance sheet, Air India plans to sell some of its new aircraft to a separate company and then lease them back, in line with a practice followed by several private carriers.
The state-run airline expects to end 2008-09 with a cumulative loss of Rs 7,200 crore, according to a statement by civil aviation minister Praful Patel in Parliament on Wednesday. The company is yet to finalise its balance sheet for the year. Its stand-alone losses last fiscal were around Rs 5,000 crore.
The sale and leaseback strategy will free up capital to help the beleaguered airline turn around in a difficult aviation market. Globally, the combined losses of all airlines exceeded $9 billion, according to the International Air Transport Association.
?We will get into sale and leaseback of planes eventually. That is the model private carriers are following. It will help in taking capital costs out of the company?s books. Of course, lease rentals will have to be paid,? Patel said in an exclusive interview with FE on Wednesday.
Simultaneously, the airline?s equity will also have to be raised to around Rs 2,500 crore from the current base of Rs 145 crore. According to Patel, bailout estimates of Rs 10,000-15,000 crore were unfounded. ?There are a lot of projections, but I am confident that is not the kind of money required.?
Under the sale-leaseback arrangement, Air India would sell planes to a separate lessor, who then leases them back to the airline. This would free up funds tied up in the aircraft and reduce the debt raised to purchase them. It would also shift the aircrafts? resale risk to the lessor. Private domestic carriers, including SpiceJet and Jet Airways, have already used similar arrangements to clean up their balance sheets.
The minister said apart from high fuel costs as well as reduced passenger and cargo traffic due to the slowdown, debt servicing charges and higher depreciation on new aircraft had added to Air India?s costs. ?(In 2008-09, the airline) had Rs 1,300 crore of depreciation because of the new fleet that was inducted. (The previous) year, it was Rs 1,000 crore. This also adds to the costs,? Patel said.
Air India currently has 151 planes in its fleet. Half of these are older than 15 years. Of the 111 planes worth $11 billion that it planned to induct by March 2012, the company has already bought 51 planes worth $4 billion. ?The management is free to reschedule or cancel a portion of the plane order. It is for the management to decide,? he said.
In 2009, Indian carriers have withdrawn over a third of their aircraft orders, according to Boeing estimates. Air India, however, plans to induct 30 aircraft this fiscal and another 45 by March-end 2012.
Confident that AI would see better days soon, Patel said, ?AI is becoming the focus of the whole aviation industry. This is a company problem. To project it as a government and industry problem is not correct.?