Air India's Board Approves Financial Restructuring Plan Amidst Debt Crisis

Air India's board of directors has approved a financial restructuring plan, which includes the issuance of preference shares worth Rs 7,500 crore to a consortium of 26 banks led by the State Bank of India (SBI). This move aims to alleviate the airline's cash-strapped situation and comes after the consortium of banks broadly approved the plan. The Reserve Bank of India (RBI) had earlier greenlit the restructuring plan, and now the SBI, as the leader of the consortium, will seek minor clarification from the RBI.

Key Takeaways:

• The Air India board approved the issuance of preference shares worth Rs 7,500 crore to the consortium of 26 banks, led by the SBI, as part of the financial restructuring plan.
• The plan involves equity infusion by the government over the next 10 years, conversion of short-term loans to long-term ones, reduction of interest rates, and starting maintenance and ground-handling subsidiaries.
• The equity infusion will depend on the recommendations of the monitoring board and will be linked to the airline meeting targets on cost-cutting, increasing revenues, flight occupancy, and on-time performance.
• The government has already infused Rs 3,200 crore in equity, and the airline is expected to receive the remaining funds through the financial restructuring plan.
• Air India posted a net loss before tax of Rs 6,994 crore for the year ended March 2011, according to government estimates.
• The airline has short-term loans of Rs 27,000 crore and another Rs 42,000 crore to buy aircraft, taken from around 15 banks.
• Kingfisher Airlines, another Indian carrier, issued shares amounting to 23.4% of the airline to a consortium of 13 banks, led by the SBI, in March after converting compulsory convertible preference shares.

Sources:

• ABP Private Limited, distributed by Contify.com.
• Reserve Bank of India (RBI)
• State Bank of India (SBI)
• Ministry of Civil Aviation
• Air India
• Kingfisher Airlines