Friday, October 21, 2016

If Air India is turning around, why should LIC offer low-cost loan to the Maharajah?

Few days after the airline reported its first operating profit in the last ten years for the fiscal year ended 2015-16, the cash-strapped company has now announced it has cut its debt by Rs 5,000 crore in the last fiscal.
As it works towards becoming fully profitable ahead of its schedule under the 10-year turnaround plan, the carrier has brought down its debt to around Rs 46,000 crore at the end of March this year.
"We have phased out more than Rs 5,000 crore debt from the books in the last fiscal and it now stands at around Rs 46,000 crore," a top Air India official said.
The airline had a total debt of Rs 51,367.07 crore at the end of 2014-15 fiscal.
Even as the airline has been reporting improved operational performance besides working on ways to pare debt last fiscal, the debt-laden airline will be seeking help from national insurer LIC to convert its high-cost debt.
Of the Rs 46,000 crore debt post the reduction in dues, an Air India official said Rs 28,000 crore are short-term loans and the rest are long-term borrowings.
According to a report in Times of India, top officials of Air India and Life Insurance Corporation (LIC) are in discussions wherein the former wants its current 10 percent rate of interest on its working capital loan of Rs 10,000 crore be converted to 7 percent by the government-controlled insurer. The lowering of interest rate will help Air India save Rs 300 crore annually on its loan dues.
“AI's total loan is about Rs 50,000 crore, of which Rs 28,000 crore is working capital loan at an interest rate of 10 percent. We are seeking to convert whatever possible of this working capital loan to a LIC loan at 7 percent. Switching Rs 10,000 crore will lead to a saving of Rs 300 crore annually in debt servicing," the Times of India reported quoting a source.
20/10/16 F.Business