Tuesday, July 18, 2017

Air India's debt pile: At Rs 6,000 cr interest outgo, balance sheet cleanup crucial for co's sale

New Delhi: Almost Rs 10 crore daily net loss and Rs 16.5 crore in daily debt servicing. This is what Air India’s balance sheet looked like as of March this year, according to data presented by Minister of State for Civil Aviation Jayant Sinha in Rajya Sabha today. The airline has about Rs 6,000 crore debt servicing obligation on its books which is 50 percent more than previously thought. And despite historic low fuel prices in FY17 helping it significantly improve its margins, Air India’s balance sheet continues to be splashed in red. It has reported a three-fold jump in operational profit for FY17, largely on the back of benign fuel prices, with other costs remaining nearly the same.

In the last few weeks, a lot of chatter and public discourse around Air India has been about its potential disinvestment and who are the interested private players likely to board the Maharaja. The biggest hurdle for any potential buyer of Air India continues to be its debt pile – in fact, it is the inability of the government to lighten Air India’s debt burden which is pushing it to consider divestment in the first place. So what does Air India have to pay each year to service this debt? As per Sinha’s reply, this figure is about Rs 6,000 crore. This means Air India has to pay about Rs 500 crore each month in interest or about Rs 16.5 crore each day of the year as interest outgo. The total debt on the airline’s books as of March this year is Rs 48,876.81 crore. No wonder then that IndiGo, which has already expressed interest in bidding for the overseas operations of the airline, has clearly said it does not plan to take on the airline’s debt.

When three Rajya Sabha MPs wanted to know the reasons for Air India facing financial pressure and earning less profit despite having more resources compared to private airlines, MoS Civil Aviation Jayant Sinha said in the reply today “Air India is facing financial pressure and earning less profit due to high debt burden as an offshoot of past accumulated losses. The debt servicing is at around Rs 6,000 crore per annum.”
18/07/17 Sindhu Bhattacharya/First Post