Surajeet Das Gupta / New Delhi Jun 28, 2011, 00:27 IST
Air India has warned the Prime Minister’s Office (PMO) and the finance ministry that the country’s sovereign rating may be hit as the airline is on the brink of defaulting on interest payments on foreign loans of Rs 15,000 crore. The loans are backed by a government guarantee.
The state-owned airline had taken these loans to part-fund its Rs 22,000-crore aircraft acquisition programme. The banks involved include Citibank, Standard Chartered, Deutsche Bank, J P Morgan and KFW.
In a communication to PMO and the finance ministry sent a few days ago, the Air India management pegged the overdue amount at Rs 4,489 crore, including payments to oil companies, airport operators, vendors and employees, besides interest on working capital loans.
CASH CRUNCH
Overdue position (dues not settled after 120 days)
1) Oil companies
Rs 2,300 cr
2) Interest on working capital
Rs 374 cr
3) Interest on IDBI aircraft loan
Rs 200 cr
4) Service tax
Rs 123 cr
5) Airport operators
Rs 775 cr
6) Other vendors
Rs 367 cr
7) Wages
Rs 350 cr
Total
Rs 4,489 cr
Source: Air India
It said due to the critical liquidity position on account of banks’ refusal to lend (because of non-payment of interest on working capital loans), the vendors’ dues of over 120 days were pending. The vendors were threatening to put the airlines on “credit hold”, which would hit operations, it said. Such an interruption, it said, would lead to a fall in revenue, hitting even payments for loans taken to buy aircraft.
The situation, it said, had been worsened by the fact that the government had not paid dues of Rs 1,173 crore on account of VVIP operations and flights to evacuate Indians from Libya, Egypt and Japan.
Air India said its monthly collection was Rs 1,100 crore, whereas the expenditure was Rs 1,700 crore. Out of the operational revenue of Rs 22 crore a day, Rs 14.50 crore goes to oil companies, leaving only Rs 7.5 crore for servicing loans.
At a review meeting a few days ago, the Air India management was given steep revenue collection targets, without which it would be in big trouble in the coming months. It was told to increase daily revenue from Rs 38 crore to Rs 65 crore (Rs 1,950 crore a month) and ensure 40 per cent higher passenger traffic receipts (from Rs 30 crore to Rs 42 crore a day). It was also told to double cargo revenue to Rs 5 crore a day. Alliance Air, a subsidiary, was asked to earn Rs 1 crore extra every day.
The management said meeting these targets would help the airline bridge the Rs 600-crore monthly gap between expenditure and revenue, without which it would not be able to make interest payments.
The topic of Air India and its woes could be discussed and published till eternity. While it makes for a good reading and a tea time discussion for most Indians, the real problems in the airline get no further credence. The management writes to the govt, the govt suggests measures and targets, reviews later and both sides do nothing more than exchange these uncommon love letters!!! The situation needs immediate redressal and yet none seem to be bothered! Poor Mr JRD Tata,could be tossing in his grave to see his dream so precariously vandalised.
The worst fears about Air India are coming true, slowly but steadly. Can the government afford to allow Air India to default on foreign loans. What happened to the debt restructuring. If AI does not pay the Indian banks and oil companies what about their liquidity position to carry on business. If staff is not paid how will they come back to work. Steep targets can be given, but how can they be achieved without a favourable environment for it. How long the tax paying public, public sector banks and public sector oil companies and vendors should underwrite Air India?
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