Home/ Companies / News/  Air India raises 14,000 cr loan from SBI, BoB

MUMBAI/NEW DELHI : Tata group-owned Air India has secured 14,000 crore in funding from State Bank of India and Bank of Baroda through a mix of fresh loans and refinance of existing debt, two people aware of the development said.

The fundraising comprised 12,500 crore to refinance existing loans and the remaining 1,500 crore obtained through the pandemic-era Emergency Credit Line Guarantee Scheme (ECLGS). The sovereign-backed credit scheme, first introduced to aid small businesses during the pandemic, was later extended to other covid-hit sectors.

The funds will support the airline’s efforts to expand in the upcoming expansion into both domestic and international markets with leased aircraft and new planes.

As part of the expansion plan, the airline announced plans to induct aircraft on lease starting December last year and has placed a firm order for 470 aircraft with Boeing and Airbus.

The airline’s leasing plan includes 21 Airbus A320neos, four Airbus A321neos and five Boeing B777-200LRs, which have started arriving in December. The airline has also announced a firm order of 470 aircraft, and 31 of those planes —25 brand-new Boeing B737-800s and six Airbus A350-900s—will come in the second half of 2023.

A part of the borrowing is also likely to be used to fund the payout for the voluntary retirement scheme, which is likely to cost over 200 crore. The new round has been offered to all permanent general cadre officers who are at least 40 years and have completed at least five years of continuous service at Air India.

Air India’s total debt stood at 15,317 crore in FY22, down from 45,037 crore in FY21, according to disclosures in its consolidated financial statements for the last financial year. In January last year, the Tata Group took control of Air India, low-cost carrier Air India Express and ground handling service provider AI SATS. The deal involved the Tatas paying 2,700 crore in cash and taking over 15,300 crore of debt.

While an email sent to SBI and BoB remained unanswered, a spokesperson for Air India declined to comment.

The loans from SBI and BoB are benchmarked to SBI’s six-month marginal cost of funds-based lending rate (MCLR) and are priced 50 basis points (bps) above it, the first person cited above said on the condition of anonymity.

Currently, SBI’s six-month MCLR stands at 8.4%. A post-covid pickup in the aviation sector has made it a lucrative opportunity for banks.

“Bankers are more than willing to lend to the Tata Group. Given that there are very few large corporates looking for bank loans, lenders are eager to lap up such proposals," the second person said.

In August last year, Crisil Ratings reassigned its AAA rating to long-term bank loans of Air India and reaffirmed short-term loans at A1+. The rating agency said it factored in the strategic and economic importance of Air India to its ultimate parent, Tata Sons Pvt. Ltd and the strong managerial linkages between these entities.

“The rating factors in the group’s articulation of the intent to maintain majority shareholding and to assist Air India in servicing its obligations in a full and timely manner. The rating considers the outstanding track record of need-based support extended by Tata Sons to its group companies," it said.

The last few years of corporate deleveraging have led to a few large corporate entities looking for bank loans, and several banks have started focusing on the mid-corporate segment to grow their books. Aggregate bank loans to corporates stood at 32.88 trillion in January, up 8.7% from the same period last year.

Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Updated: 30 Mar 2023, 06:21 AM IST
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