Given how large debt hobble companies, it is not surprising Air India’s chief Ashwani Lohani has been quoted as saying the airline will beat everyone if its debt was removed. What the airline’s chief does not talk of, though, is how his rivals would do if their debt was also removed. What is more relevant, though, is that after getting R24,000 crore of money free from the government by way of equity over the past five years—amazingly, the Competition Commission of India whose job is to ensure a level playing field didn’t think this distorted it—the airline continues to chalk up huge, though reduced, losses; as compared to R5,859 crore in FY15, these were R3,587 crore in FY16.
What is worrying, going by a Mint news report, the government seems to be backing a move to convert part of the airline’s debt—the newspaper doesn’t say how much—into equity; the airline’s short-term working capital debt is R28,000 crore and the total debt R50,000 crore. Depending on how much of the debt is converted, this could make the airline profitable, but the government has to think of how much of this money is likely to be recouped—and if Air India’s debt can be converted into equity, why not do this for everyone in all sectors? Since public sector banks will be left holding tens of thousands of crore of Air India’s debt in the form of equity, both the airline chief and the aviation minister should testify—in Parliament—that they feel the share price will soar by so much it will allow the banks to recoup a sufficient part of their original debt. Since this will not be the first time Air India has failed miserably in achieving fancy turnaround targets set out by well-paid consultants, the government has to be careful before embarking upon another misadventure.
13/02/17 The Financial Express
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What is worrying, going by a Mint news report, the government seems to be backing a move to convert part of the airline’s debt—the newspaper doesn’t say how much—into equity; the airline’s short-term working capital debt is R28,000 crore and the total debt R50,000 crore. Depending on how much of the debt is converted, this could make the airline profitable, but the government has to think of how much of this money is likely to be recouped—and if Air India’s debt can be converted into equity, why not do this for everyone in all sectors? Since public sector banks will be left holding tens of thousands of crore of Air India’s debt in the form of equity, both the airline chief and the aviation minister should testify—in Parliament—that they feel the share price will soar by so much it will allow the banks to recoup a sufficient part of their original debt. Since this will not be the first time Air India has failed miserably in achieving fancy turnaround targets set out by well-paid consultants, the government has to be careful before embarking upon another misadventure.
13/02/17 The Financial Express
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