Air India seeks to refinance its $1.15 bn loan from IDBI

Air India seeks to refinance its $1.15 bn loan from IDBI

Mumbai: The board of flag carrier Air India will on 19 January choose among ICICI Bank Ltd, State Bank of India (SBI) and Standard Chartered Plc to refinance a $1.15 billion (Rs5,187 crore) loan taken from a consortium led by IDBI Bank Ltd.

“The loan would be a rupee loan and would be backed with a sovereign guarantee," said an official of the civil aviation ministry. “Air India is looking at raising a loan with an average maturity of 12 years. The carrier is looking at an interest rate of 9%."

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A sovereign guarantee gives banks an assurance that the government will repay a loan if the borrower is unable to do so.

The development was confirmed by an Air India executive. Both officials spoke on condition of anonymity. Officials at the three banks declined to comment on the matter.

The state-owned firm had borrowed the money to buy 21 Airbus SAS planes, spare engines, simulators and workshop tools.

Originally, Air India had decided to furnish only one type of security instead of two—either a sovereign guarantee offered by the government, or aircraft as collateral. The airline typically used to offer both for long-term loans.

The move to offer a single security follows the government’s decision that the state-run carrier should provide only one kind of collateral. The government has directed Air India to offer a part of its sovereign guarantee to raise working capital loans at cheaper rates.

Both officials quoted above did not say whether the airline would be offering the single cover of sovereign guarantee, excluding aircraft as collateral.

Air India has short-term loans of Rs19,000 crore and Rs22,000 in long-term loans.

“It won’t be difficult for Air India to raise loans going by its turnaround plan," said John Siddharth C.P., industry analyst, aerospace and defence, at consulting firm Frost and Sullivan (South Asia and Middle East).

“Banks will not be hesitant to give loans to Air India as the carrier has plans to hive off its engineering and aircraft maintenance into different units," Siddharth said. “With this, the operating expenses of Air India will go down. Also, banks are more comfortable with government backing."

The national carrier posting a profit in November was a positive sign, he added.

On 3 January, Air India said it posted an operating surplus, or cash profit, of Rs21.66 crore in November. It also said 108 of the 194 flights on the Air India network made a cash profit in November.

On 7 October, Mint reported that state-run Air India could turn the corner in the year ending March by posting an operating profit as air traffic continues to revive and changes that have been implemented by the national carrier start taking effect.

The airline is expected to turn Ebitda (earnings before interest, taxes, depreciation and amortization) positive in the current fiscal.

Air India and SBI Capital Markets Ltd, an arm of SBI, representing a consortium of banks, have approached the Reserve Bank of India with a debt restructuring proposal.

On 19 January, consulting firm Deloitte Consulting India Pvt. Ltd is expected to present the final turnaround plan after vetting similar plans made by Air India, in association with SBI Capital Markets.

Graphics by Yogesh Kumar / Mint