The Debt Burden Gets Heavier

According to senior government sources, the State Bank of India, IDBI and Bank of India (Air India has taken loans from most nationalised banks) backed by the Reserve Bank of India are unwilling to recast the Air India's debt (unlike for Jet Airways and Kingfisher Airlines where the recast is under works) unless the shareholder — in this case the government — hikes its equity in the carrier to at least Rs 5,000 crore from Rs 945-odd crore currently. If the last equity infusion of Rs 1,200 crore cleared by the Cabinet comes in as promised, the government holding in the company would rise to nearly Rs 2,500 crore — the government will have to infuse Rs 2,500 crore more to reach the Rs 5,000 crore level.
Air India’s debt stands at around Rs 40,000 crore. “In such a case, only government intervention can make a difference,” says an official.
The group of ministers (GoM), which will meet on 6 December, will be informed that the airline has reached “the end of the road” and that it cannot survive unless its debt is recast. A debt recast will help the carrier reduce the interest rate on its working capital loans. Air India’s current net worth is in the range of minus Rs 15,000-17,000 crore. “That’s what it is worth if you decide to sell it today,” says a consultant who has worked closely with the airline. He says every rupee that the airline is spending today is borrowed money.
What makes matters worse is the fact that most of the airline’s senior management is busy with internal politics. Many within argue that the hiring of chief operating officer Gustav Bauldoff at an exorbitant pay packet can make very little material difference to an airline that is sinking fast.
04/12/10 Anjuli Bhargava/Business World

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Categories: Air India Dec 2010