Banks approve Air India's financial restructuring plan

A consortium of 19 banks, led by State Bank of India, has approved the financial restructuring plan of Air India. The plan, which includes debt restructuring of Rs 18,000 crore (Rs 180 billion) by the banks and a committed equity infusion by the government, will require Cabinet approval.

Of the Rs 22,000-crore (Rs 220-billion) high-cost working capital debt of the airline, banks will restructure nearly Rs 18,000 crore (Rs 180 billion) - Rs 10,500 crore (Rs 105 billion) will be converted into long-term debt with a repayment period of 10-15 years and the remaining Rs 7,400 crore [Rs 74 billion] (approximately) will be repaid to banks through a government-guaranteed bond issue.

"The restructuring plan has been approved by the banks and we hope Cabinet approval will come by the middle of April. That will help reduce our interest outlay substantially in the first year, as we get a moratorium on the loan for the first year," said a senior Air India official, who did not wish to be identified.

The official said the amount of Rs 7,400 crore would have a moratorium of 12 months and the Rs 10,500 crore of six months. "We will be able to save around Rs 1,000 crore (Rs 10 billion) immediately in the first year after the restructuring plan is implemented," he added. Air India has debt of over Rs 43,000 crore (Rs 430 billion) - Rs 22,000 crore (Rs 220 billion) short-term and Rs 21,000 crore (Rs 210 billion) long-term.

It has an annual interest outlay of Rs 2,700 crore (Rs 27 billion). Of the Rs 2,700 crore, Rs 1,600 crore (Rs 16 billion) goes to service working capital loans and the rest to service low-cost

loans taken for aircraft acquisition.

In the second stage of the financial restructuring plan, the government has to infuse equity in the airline till 2020-21. A Group of Ministers (GoM), headed by finance minister Pranab Mukherjee, had recommended an infusion of Rs 23,000 crore (Rs 230 billion) in the airline till 2020-21.

As part of the restructuring plan, the government announced in the Budget an infusion of Rs 4,000 crore (Rs 40 billion) in financial year 2013, raising the airline's equity base to Rs 7,345 crore (Rs 73.45 billion). The infusion is over and above the Rs 3,200 crore (Rs 32 billion) infused in the last two financial years.

The airline will utilise Rs 4,000 crore (Rs 40 billion) for its dues. It has to clear dues of Rs 2,500 crore (Rs 25 billion) to oil companies; Rs 1,200 crore (Rs 12 billion) is due to be paid to airport operators and  Rs 580 crore (Rs 5.8 billion) in employees' salaries.

This is the second time that banks have approved a debt restructuring plan for Air India. In the plan approved earlier, banks had to convert Rs 10,500 crore (Rs 105 billion) of short-term loans into long-term and convert Rs 7,400 crore (Rs 74 billion) into equity shares. The banks later objected to converting debt into equity in the carrier, as they were not sure about the company's revival and the finance ministry had rejected any board-level representation for banks.

Air India has accumulated losses of over Rs 20,000 crore (Rs 200 billion). It is losing Rs 15 crore (Rs 150 million) a day.