Mumbai: Air India Ltd, which is in the process of restructuring its Rs 18,000 crore debt, will induct strategic investors in two of its subsidiaries, Air India Engineering Services Ltd and Air India Air Transport Services Ltd, being carved out of its engineering and ground-handling businesses, a civil aviation ministry official said.
Recast plan: Air India’s two new subsidiaries will together accommodate 20,000 of the airline’s workforce of around 30,000. Photo: Bloomberg.
The two subsidiaries will start operations by 1 April and strategic investors will be brought into the companies in due course, said the official, who did not want to be named. He declined to define a time frame for the investors to be inducted.
By April, the Indian government will also infuse Rs 1,200 crore equity into the carrier.
The aviation ministry is preparing the ground for the Union cabinet to approve an equity infusion of Rs 30,000 crore in Air India over the next 10 years and the airline will receive Rs 1,200 crore of this money in April. “This money will be used to clear dues to oil marketing companies, the Airports Authority of India and other vendors,” added the official.
He explained that the two subsidiaries will together accommodate 20,000 of the airline’s workforce of around 30,000. Employees will be transferred without any change to the terms of their service, he said, adding that the subsidiaries would also recruit from the market.
Watch Video
After getting the go ahead from bankers, Air India is set to restructure loans worth Rs 18,000 crore. Mint’s PR Sanjai discusses the implications.
Loading video
As a part of Air India’s debt recast plan, scripted by SBI Capital Markets Ltd, the investment banking arm of State Bank of India (SBI), Rs 11,000 crore of short-term loans on the airline’s books will be converted into long-term loans, and Rs 7,400 crore of short-term loans will be converted into government-guaranteed long-term bonds carrying 8.5% interest rate.
On Friday, banks approved the debt recast plan that was delayed after lenders expressed some reluctance to convert Rs 7,400 crore debt to cumulative redeemable preference shares.
Air India has a total debt of Rs 43,777 crore. It has accumulated a Rs 20,320.86 crore loss over the last four years.
State-owned insurer and India’s largest institutional investor Life Insurance Corporation of India (LIC) may pick up a large chunk of the Rs 7,400 crore worth government-guaranteed bonds to be issued by Air India.
“There is a proposal to park a chunk of Rs 7,400 crore worth government-guaranteed bonds with LIC and the remaining bonds will be picked up by lenders of the consortium, led by SBI,” said a senior Air India executive, who did not want to be named.
A senior banker, whose bank is part of the consortium of banks that are working with Kingfisher Airlines Ltd in the restructuring plan, confirmed the development without divulging details.
Officials at LIC could not be contacted on Monday, a public holiday.
“The deadline set by the Reserve Bank of India is 20 March to complete all formalities of debt restructuring. Air India can focus on operational issues as the management was dealing with financial restructuring for a year,” the banker said, requesting anonymity.
M.S. Balakrishnan, former director of finance at Indian Airlines, said the debt recast will give Air India a big boost and considerable relief. “As there will be no monthly outgo of interest, Air India can pay salaries to its employees and clear some pending bills,” he added.
Balakrishnan pointed out that financial restructuring alone was not enough to revive the carrier. “Air India needs to take many measures to increase aircraft utilization, completing the merger of Indian Airlines and Air India, and making routes profitable,” he said.
The current Air India was born out of the merger of international airline Air India and domestic carrier Indian Airlines.
Air India will save Rs 1,000 crore a year as a result of the debt restructuring. Currently, it pays interest of Rs 2,400 crore a year to banks.
“The financial restructuring plan will also give a one-year moratorium for repayment of loan and interest. The accumulated interest of this year will be kept in a separate account, to be repaid in 10 years. A Rs 1,000 crore relief will bring down the carrier’s total interest outgo to Rs 1,400 crore a year,” the Air India executive added.
Meanwhile, Air India has put off taking delivery of the first 27 Boeing 787s to June from March. These planes will be deployed in some loss-making routes.
pr.sanjai@livemint.com