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Airlines

Air India's Recurring Defaults Pose Credit Risk for Lenders

Strategic Insights

— 1 min read

Air India's recurring defaults are a credit negative for its lenders, including State Bank of India (SBI) and Punjab National Bank, according to Moody's Investors Service Inc. The state-owned carrier, seeking a total equity support of '42,920 crore till fiscal 2021, including guarantees for aircraft loans worth '30,584 crore, has been missing salary payments and defaulting on interest payments in the past three months. The government's bailout plan provides temporary relief but raises concerns over the government's willingness to provide timely support to sovereign-owned public sector enterprises.

Key Takeaways:

  • Air India has a debt of '42,570 crore and accumulated losses of '22,000 crore as of 31 March.
  • The airline has been missing salary payments and defaulting on interest payments for the past three months.
  • The government's bailout plan provides temporary relief, but recurring defaults by the airline imply that government support may not be timely, which is "credit negative" for Indian banks.
  • Air India has submitted a financial restructuring plan to the finance ministry, which involves converting at least 60% of its total working capital into a long-term loan and the rest into cumulative preference shares for 15 years, expected to save '1,000 crore a year in interest rates.
  • The government has approved a further equity infusion of '1,200 crore, but this may not be sufficient to address Air India's long-term financial woes.
  • Air India's lenders, including SBI and Punjab National Bank, are exposed to nearly 70% of the airline's loan exposure.
  • A senior Air India executive denied any problems for Indian banks, but Moody's remains concerned about the government's willingness to provide timely support.

Statistics:

  • Air India's debt: '42,570 crore
  • Accumulated losses: '22,000 crore
  • Government’s bailout plan: '6,600 crore
  • Further equity infusion approved: '1,200 crore
  • Interest savings expected: '1,000 crore per year
  • Loan exposure to SBI and Punjab National Bank: nearly 70% of Air India's loan exposure

Sources:

  • "Moody's Investors Service Inc."
  • Vineet Gupta, Vice President-Senior Analyst, Moody's Investors Service Inc.
  • "The cabinet committee on economic affairs"
  • "SBI Caps (Capital Markets) Ltd"
  • "Deloitte"
  • "Mint, New Delhi"
  • "McClatchy-Tribune Information Services"

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