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Deutsche Bank front-runner for Air India’s Dreamliner loan

Deutsche Bank front-runner for Air India’s Dreamliner loan
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First Published: Tue, Oct 04 2011. 01 05 AM IST
Updated: Tue, Oct 04 2011. 01 05 AM IST
Mumbai: Deutsche Bank AG has emerged as the front-runner to offer a $850 million (Rs 4,200 crore) loan to Air India Ltd for buying 27 Boeing 787 planes, or Dreamliners, said two airline officials familiar with the development.
As an alternative, the cash-strapped flag carrier has also lined up international leasing companies that are willing to buy the Dreamliners and later lease them back to Air India.
After the Comptroller and Auditor General of India said Air India’s proposal to buy 111 planes, including 27 Dreamliners, at one go was risky, the government is having a rethink on purchasing the 787s. A group of ministers will meet this month to take a final call on buying the planes.
“We are exploring both options of direct acquisition by taking a loan from financial institutions, or sale and lease-back,” an Air India official, one of the two people familiar with the matter, said requesting anonymity. “We have shortlisted companies for both options, and we are waiting for the outcome of ministers’ meeting.”
The second Air India executive confirmed the development and said Boeing Co. has given a new delivery schedule.
“If the group of ministers okays it, the first Boeing 787 will join us in December followed by the second in March. We are ready for both options as we have shortlisted a few global leasing companies,” he said, also declining to be identified.
A Deutsche Bank spokesman said the company did not want to comment on the matter.
Other Indian and international financial institutions were in the fray to offer Air India a loan. The names of these firms haven’t been disclosed.
Air India had a debt of Rs 42,570 crore and an accumulated loss of Rs 22,000 crore on 31 March. The airline has sought an immediate equity infusion of Rs 6,600 crore from the government to stay afloat. It requires Rs 42,920 crore in infusions till fiscal 2021, including guarantees for aircraft loans worth Rs 30,584 crore.
The state-run airline is exploring the sale and lease-back route to prevent adding to its debt burden. The Air India officials mentioned earlier declined to name the leasing firms the airline has lined up. Big leasing firms such as International Lease Finance Corp. and GE Capital Aviation Services buy planes from airlines and lease them back.
A sale and lease-back agreement typically allows airlines to generate additional capital and is often a stop-gap arrangement to project a healthier balance sheet and reduce the debt burden.
Private airlines SpiceJet Ltd, Jet Airways (India) Ltd, Kingfisher Airlines Ltd and IndiGo (run by InterGlobe Aviation Pvt. Ltd) are using the route to expand their fleet.
“Air India has always been a trendsetter with buying cutting-edge aircraft in the past, including Boeing 707 in the 1960s, the Lockheed Super Constellation in the 1950s, and the Airbus A320 in the late 1980s. The 787 will certainly help Air India to lower its operating costs,” said Mark Martin, head of airline projects at Eastern SkyJets, a Dubai-based scheduled and charter airline that operates a fleet of Boeing aircraft.
“The airline needs to be patient and wait for the fleet to pay back; the Boeing 787 Dreamliner with its low operating costs will help Air India turn profitable faster, considering fuel prices will continue to be volatile,” said Martin, a former head of the aviation practice at audit and consulting firm KPMG in India.
The Dreamliner claims a 30% reduction in operating costs because of higher fuel efficiency than other planes.
Air India was scheduled to get the first of its 27 Boeing 787s in September 2008, but delivery was pushed back to December because of delays in manufacturing.
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First Published: Tue, Oct 04 2011. 01 05 AM IST