Equity prop for AI in the air

New Delhi: The government may clear Air India’s proposal for fresh equity infusion but is unlikely to accept the state-run carrier’s request for a Rs 2,750-crore bailout package.
The increased equity will help Air India (AI) to leverage loans to buy planes. Top officials said a plea for a Rs 1,231-crore infusion, which could take its total equity to nearly Rs 1,400 crore, may be accepted.
The airline needs the equity funding to leverage loans for its Rs 44,000-crore fleet acquisition programme to buy some 111 aircraft.
In the current financial year, it needs to pay Rs 8,165.44 crore to pay for the new aircraft even as it faces an accumulated loss of over Rs 4,300 crore.
Air India’s equity after merger with Indian Airlines has been calculated at Rs 145 crore. The capital to borrowing ratio after taking on loans to complete its fleet acquisition works out to 1:169. Even after infusion of fresh equity, the ratio would only improve to 1:29.
According to officials, a fresh round of equity infusion may not be enough for Air India and the government may have to agree to issue fresh capital to the public to raise more funds later.
Many government officials are advising Air India to delay its plane buy so that the fleet expansion does not take place during the recession. The decision to raise equity may be based on such an advice.
Air India has argued that the government, as the owner of the national carrier, should provide a bailout as the cost of the merger. But this argument has found few takers in the government.
According to AI, the merger has meant shutting down offices, redeploying personnel and fleet and bringing in new software to integrate ticketing systems. If the government agrees to the soft loan package for AI, officials feel, it may prompt PSUs in other sectors to seek such bailouts.
30/04/09 Jayanta Roy Chowdhury/The Telegraph

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Categories: NACIL May 2009