Faced with severe cash crunch, Air India has sought the government?s guarantee for bank loans to meet its working capital expenses.

Arvind Jadhav, CMD of the state-owned carrier, has written to the civil aviation ministry seeking support to secure loans at a lower interest rate.

?The banks are not even ready to roll over existing loan in the absence of government?s guarantee making it difficult to meet the day-to-day financial requirements,? the CMD is understood to have communicated to the ministry.

Air India has a total working capital loan of around Rs 20,000 crore which attracts an interest rate of 11.5%. The annual outgo on this front is around Rs 2,000 crore.

?The airline has borrowed short-term funds the repayment period of which ranges from 3-6 months,? an official said.

The public sector carrier has a total debt of about Rs 40,000 crore (both short and long-term) and is struggling to clear part of the loan in the face of delay in getting financial assistance from the government.

With an accumulated loss of over Rs 12,000 crore as on March 2010 for banks and financial institutions are not keen to extend any further loans to the airline in the absence of government guarantee.

The airline is awaiting the second tranche of equity infusion of Rs 1,200 crore by the government. Earlier the government has already infused Rs 800 as part of the total Rs 5,000 crore bailout package approved earlier this year.

The Cabinet Committee on Economic Affairs (CCEA) is expected to take up the proposal seeking equity infusion shortly.

As earlier reported by FE, the Prime Minister’s Office (PMO) has asked the civil aviation ministry to get the nod of the finance ministry for further financial assistance. Not impressed by Air India’s bid to cut cost, the finance ministry had earlier in its response to a Cabinet note circulated by the aviation ministry for releasing Rs 1,200 crore to the airline had expressed its reservation.

Air India had earlier this month told the aviation ministry that it needed Rs 3,000 crore at the earliest to continue its operations smoothly.