Govt guarantee on loans brings respite to Air India

New Delhi: The interest rate on working capital loans of Air India may soon come down, as the finance ministry is likely to provide a sovereign guarantee for the airline’s proposal to raise foreign loans.
In October, Air India had approached the government to raise $2.3 billion through external commercial borrowings (ECBs) as part of a plan to restructure its high-cost working capital debt of Rs 21,000 crore.
A senior government official requesting anonymity confirmed the likelihood of gurantee banking. Theis will help the airline to bring down interest rates on working capital loans by up to 3 per cent.
The carrier’s working capital debt of Rs 21,000 crore was borrowed at an interest rate of 12 per cent. AI’s annual interest payment is Rs 1,800 crore on a debt of Rs 40,000 crore (Rs 21,000 crore is working capital debt and the rest low-cost debt taken primarily to buy aircraft). The airline has accumulated losses of Rs 15,000 crore. The carrier lost Rs 2,226 crore in 2007-08, Rs 7,189 crore in 2008-09, and Rs 5,551 crore in 2009-10.
In its attempt to bail out Air India from its financial crisis, the government recently injected Rs 1,200 crore and Rs 800 crore in two tranches in 2009-10, raising the equity base to Rs 2,145 crore. Officials in the civil aviation ministry say the first equity infusion of Rs 1,200 crore didn’t change the situation much.
04/02/11 Mihir Mishra/Business Standard

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Categories: Air India Feb 2011