Mumbai: Air India plans to raise $850 million (Rs 3,791 crore) to part-fund the purchase of 27 Boeing 787 planes as the state-run carrier battles to prevent working capital loans from turning into bad debt.
On Tuesday, Air India told finance ministry officials that the airline may not be able to service working capital loans from Indian banks if it doesn’t get an immediate equity infusion of Rs 6,600 crore from the government.
According to two Air India executives, if the carrier fails to make payments before 31 July, the loans will turn bad as no payments have been made in the last two months. A loan turns bad if a borrower doesn’t service it for three months. Neither of them wanted to be named as they are not authorized to speak to the media.
Without the equity infusion, the cost of borrowing will go up for the proposed $850 million debt-raising plan.
“The moment a company defaults in paying interest to banks, its future fund-raising programme gets affected, but Air India will get the benefit of being a government entity,” said Madan Sabnavis, chief economist at rating agency firm Credit Analysis and Research Ltd.
Air India has submitted a financial restructuring plan to the finance ministry. According to the plan, at least 60% of the total working capital will be converted into a long-term loan and the rest into cumulative preference shares for 15 years. It envisages a saving of Rs 1,000 crore a year in interest rates.
“The government has not cleared it as yet. If nothing fructifies, banks will have to classify the loan as a non-performing asset (NPA),” said a senior executive with a large public sector bank that has exposure to the carrier. He did not want to be identified.
Once a loan becomes an NPA, banks need to set aside money or provide for it. Besides, they also do not earn any interest on such loans.
“The government should take a decision whether we need to have an airline like Air India. If yes, it cannot be run as loss-making. Therefore, it needs to bring in private sector ethics to the organization,” Sabnavis said.
Air India should increase efficiency levels, lower expenditure and pare the workforce to cut its wage bill. The airline has trimmed its workforce from 33,500 to 28,500 in the last three years.
Air India had debt of Rs 42,570 crore and accumulated losses of Rs 22,000 crore as of 31 March.
On Wednesday, Mint had reported that Air India was seeking a total equity support of Rs 42,920 crore till fiscal 2021. This includes guarantees for aircraft loans worth Rs 30,584 crore (both present and future) up to the 2021 fiscal year.
“It is possible to revive Air India, but it has to run like a commercial enterprise,” Sabnavis said.