SBI wants collaterals from airlines seeking credit

Bangalore: State Bank of India has insisted that airline companies provide corporate guarantees as a precondition for credit lines.
Top SBI officials said that at least two of the country’s largest private sector airline companies had approached it for credit support.
Currently, only the public sector National Aviation Company, the holding company of Air India, has credit support from the domestic banking sector.
Unlike the public sector, where there was an implicit sovereign guarantee cover and physical asset coverage, private sector had little to offer as collateral, the officials said.
Under current guidelines for borrowers, the prescribed physical asset coverage ratio is 150 per cent of the outstanding credit.
Besides, the bankers said, the airline companies were also not in a position to pledge cash flows.
This was because almost all private sector airline companies largely operate leased fleet. This makes lease financiers the asset owners.
The lessors were entirely cross-border. American International Group subsidiary International Lease Financing Corporation and Ireland-based Ansett Worldwide Aviation Services are among the largest lessors to the large domestic aviation companies – Jet Airways Ltd and Kingfisher.
In most of these lease arrangement, the lessors had the first charge on the aviation companies’ revenues through an escrow accounting mechanism.
Moreover, lease rentals during the last few months have been on the ascent on account of the hardening global interest rates and due to weakening of the rupee against the US dollar.
30/10/08 C. Shivkumar/Business Line

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Categories: Indian Aviation- In General Oct 2008