In a bid to revive crisis-ridden airlines, the Budget proposed a Rs 4,000 crore equity infusion for Air India and permitted airline companies to raise capital through external commercial borrowings (ECBs) with a cap of $1 billion for the industry for a year. Analysts wondered, though, who would lend to the sector.
“Preliminary estimates are that this may save 150-300 basis points for working capital loans for airlines. Key challenges would be the banks’ reluctance to lend to the sector and the hedging costs,” said Amber Dubey, Director (Aviation), KPMG, a financial advisory firm.
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“For ECBs, one needs a good credit rating and a balance sheet which can help raise funds. Indian carriers have huge debt and interest burden, continuing losses, mostly a negative net worth and some have business model issues. I do not see this decision resulting in any tangible gains given the deteriorating financials of the airlines,” said Kapil Kaul, chief executive of Centre for Asia Pacific Aviation, an aviation think tank.
Equity infusion in Air India did not draw any surprised reactions. The government has infused equity of Rs 3,200 crore in the last two financial years in Air India, increasing its equity base to ease to Rs 3,345 crore. Its debt stands at Rs 43,000 crore.
Finance Minister Pranab Mukherjee met a long-pending demand of the aircraft maintenance, repair and overhaul (MRO) sector by allowing full exemption from customs duty and countervailing duty to aircraft spares, tyres and testing equipment. Industry uniformly welcomed this proposal.
17/03/12 Business Standard
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