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Banks (Finance)

Air India Seeks Loan Restructuring to Boost Financial Stability

Strategic Insights

— 2 min read

Air India, facing significant financial challenges, is negotiating with public sector banks to restructure its working capital loan of Rs 21,000 crore. The proposed turnaround plan aims to make the airline EBITDA positive by 2012 and cash positive by 2014. Key components of the plan include converting 60% of the working capital into long-term debt with a fixed interest rate of 10.5%, while the remaining 40% would be converted into cumulative redeemable preference shares with a fixed interest rate of 8%. The government plans to inject equity to cover year-to-year cash deficits and guarantee aircraft loans for five years. Air India aims to complete the restructuring process by the end of June 2011, pending clearance from the Reserve Bank of India (RBI) for certain provisional norms.

Key Takeaways:

  • Air India is in talks with public sector banks, led by the State Bank of India, to restructure its working capital loan of Rs 21,000 crore.
  • The turnaround plan aims to achieve a load factor of 71% on the international sector and 75% on the domestic sector.
  • 60% of the working capital will be converted into long-term debt, while the remaining 40% will be converted into cumulative redeemable preference shares.
  • The government plans to inject equity to cover year-to-year cash deficits and guarantee aircraft loans for five years.
  • Air India seeks to complete the restructuring process by the end of June 2011, pending RBI clearance.
  • The plan is expected to result in a saving of Rs 600 crore in interest on working capital.
  • Air India is also refinancing its rupee loan of Rs 5,500 crore taken from IDBI Bank in 2009, with a bond issue to reduce interest cost by Rs 180 crore per annum.
  • The airline is also refinancing its USD 475 million bridge loan taken from Standard Chartered in April 2010 through an EXIM guarantee by Citibank, resulting in an additional saving of Rs 100 crore.

Statistics:

  • Rs 21,000 crore: Amount of Air India's working capital loan to be restructured.
  • 60%: Proportion of working capital to be converted into long-term debt.
  • 10.5%: Fixed interest rate for long-term debt.
  • 8%: Fixed interest rate for cumulative redeemable preference shares.
  • Rs 600 crore: Expected saving on interest on working capital.
  • Rs 5,500 crore: Amount of Air India's rupee loan refinanced from IDBI Bank.
  • Rs 180 crore: Annual interest cost reduction through the bond issue.
  • USD 475 million: Amount of Air India's bridge loan refinanced through an EXIM guarantee.
  • Rs 100 crore: Additional expected saving through the EXIM guarantee.
  • Rs 900 crore: Total expected savings and interest cost reduction for 2011-2012.

Sources:

  • PTI, "Air India in talks with banks to restructure loan" (June 05, 2011)

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