Air India offers lenders equity for debt

New Delhi, Mumbai: Desperate times call for desperate measures. The civil aviation ministry and the Air India management are wooing state-owned banks to convert part of their loans into equity in the airline, according to three people close to the development.
The total debt on Air India’s books stands at over Rs40,000 crore, of which around Rs20,000 crore is for working capital and the remaining for aircraft purchase.
The working capital loan was raised from a consortium of 22 banks and Air India has been negotiating to restructure this loan. Now, with the government reluctant to infuse more equity in the bleeding airline, its management is left with no option but to persuade banks to convert at least some of it into equity and the remaining into long-term debt, which would help reduce the interest burden.
As per airline estimates, if banks convert Rs16,000 crore worth of working capital loans into equity and the remaining into long-term debt, it could save the airline around Rs450 crore in interest payment each year.
Banks are also being asked to restructure the aircraft acquisition loan of Rs20,000 crore under a sovereign guarantee, which could save another Rs780 crore of interest payment a year.
18/05/11 Sindhu Bhattacharya & Vishwanath Nair

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Categories: Air India May 2011