The US Export-Import Bank (Exim Bank) will give guarantees up to $1.3 billion to Air India to fund the purchase of 27 Dreamliner Boeings 787 even as the government is yet to give its final nod. The bank which funds such purchases of machinery by non-American companies to boost exports, posted the news on its website on September 30.

A group of ministers, led by finance minister Pranab Mukherjee will meet on October 22 to decide on the Dreamliner purchase, even as the Comptroller and Auditor General (CAG) raised questions on September 7 on AI?s aircraft purchase plans, saying orders were placed based on unrealistic assumptions of growth. The 27 Dreamliners are part of a total of 111 planes ordered by Air India and the erstwhile Indian Airlines from Boeing and Airbus respectively..

Civil aviation minister, Vayalar Ravi had said on September 14 that the national carrier will not increase its debt burden by making the purchase.

?It is a very tricky situation for Air India,? says Vishwas Udgirkar, senior director, at consulting firm Deloitte India. ?They are in a tough financial situation and yet they need to invest on new aircraft.? However, the time is right since the delivery and payments can be staggered, he added.

In its board meeting on September 30, the Exim Bank board of directors also approved a $2.1-billion preliminary commitment to support the aircraft deliveries from Boeing to Air India. The preliminary commitment could result in a loan guarantee. ?Upon approval of the conversion of the preliminary commitment into a final commitment, the total transactions will support the export of 30 Boeing aircrafts to the state-owned, India?s national carrier,? Exim Bank said in a release on September 30.

K Swaminathan, a spokesperson for Air India, said that the loan guarantees are for 27 787 Dreamliners and three B777-300ERs. ?We are talking to Exim Bank to finalise the modalities for funding the purchase.?

?Typically, for large exports, the Exim Bank provides a loan guarantee,? said Deloitte?s Udgirkar. ?They will also help in securing either supplier?s credit or funding from another source.?

?In this case, it will most likely be supplier?s credit, wherein the purchase will be made on Boeing?s credit and Air India will need to make regular payments to Boeing as well as the processing fees to Exim Bank to purchase the planes,? he said. ?Boeing will supply the aircraft on the guarantee that Exim Bank will step in if Air India defaults.?

The Air India board, on September 15, left the final purchase decision to the government.

The biggest advantage of the Dreamliner is its fuel consumption which Boeing claims is 30% lower than its competitor Airbus. The first Dreamliner is scheduled for delivery to Air India in the fourth quarter of calendar year 2011.

Air India ordered 68 planes from Boeing in December 2005, and Indian Airlines ordered 43 planes from Airbus in February 2006.

Air India has already taken delivery of 18 B737-800s and 8 B777-200 LRs. Of the 15 B777-300 ER aircraft, it has received 12 planes and deliveries of three more remain. The US Exim Bank had funded Air India?s previous purchases from Boeing. The national carrier has never defaulted on payments to the Exim Bank.

?The airline will either have to replace some old aircraft or begin new profitable routes to make full use of the Dreamliners.? says Udgirkr of Deolitte.