AI to raise Rs 5,000 cr via tax-free bonds

Written by Shaheen Mansuri | Mumbai | Updated: Apr 15 2011, 07:40am hrs
Flag carrier Air India (AI) plans to raise at least Rs 5,000 crore by issuing tax-free bonds as suggested by a consortium of 12 banks led by SBI Caps involved in the airlines financial restructuring. An official from the carrier says, The management is keen to float tax-free bonds to fund the airlines fleet expansion and other expenses too. We have an ambitious strategy to order an additional 100 aircraft by 2015 over and above the recent orders we have placed.

In 2006-07, the airline had placed orders for 111 new aircrafts with Boeing and Airbus, deliveries of which have started. Air India at present has 130 aircraft, and is in the process of phasing out ageing aircraft, which are of nine years and above.

In the last two years, the government had infused Rs 3,000 crore into the national carrier, which has been struggling with gargantuan losses. Since its merger with erstwhile Indian Airlines in 2007, the national carrier has accumulated losses of over Rs 13,000 crore on its books. When contacted, AIs chief information officer, Kamaljeet Rattan told FE, Raising funds via tax-free bonds is one of the options available to us. We have not firmed up our decision yet.

Sources said that airline is likely to sign an MoU on the entire debt restructuring process with the consortium of banks within a fortnight and will then pursue the case with the apex bank to get a comfort letter on the matter. Tax-free bonds will be offered by AI to encourage public investment into the airline. These bonds will be low-risk in nature and unlike other investments, the interest earned is exempted from taxes. These bonds will create a good opportunity for investors in the high tax band. As these are government-guaranteed bonds, there isnt a chance of default.

AI has so far raised loans worth around R14,000 crore to fund aircraft purchases and is currently in the process of raising more money. The airline had placed an order for 111 aircrafts worth R45,000 crore in 2006-07. Also, a working capital loan has been extended to AI by state-run banks like SBI, PNB and Syndicate Bank.

The airlines annual interest payment is Rs 1,800 crore on a debt of Rs 40,000 crore - Rs 21,000 crore being working capital debt and rest low-cost debt taken primarily to buy aircraft.