Air India set to get relief from short-term debt

Air India will soon get rid of high-cost debt. The banks to which it owes money are discussing a proposal to convert 60 per cent of the Rs 18,000-crore short-term debt into long-term debt. The rest will be converted into Compulsorily Convertible Preference Shares (CCPS).

With this, the national carrier’s annual debt repayment burden will come down by around 42 per cent to Rs 700 crore from Rs 1,200 crore.

“The proposal to convert 60 per cent debt into long-term debt and the rest into CCPS is being considered. We will approach the airline soon,” said a Mumbai-based bank official, who did not want to be identified.

He added that the existing loans had a tenure of one year or less. This will be increased to 10 years with a one-year moratorium on payment of the principal amount, according to the proposal.

“The rest will be converted into CCPS for a long-term period,” said the banker.

Out of the Rs 40,000-crore debt, the working capital debt is Rs 22,000 crore. The rest are long-term loans taken to fund aircraft acquisition. The working capital debt has a high cost, with an average interest rate of 12 per cent.

After the proposal is finalised, it will go to the Reserve Bank of India and then the government. The national carrier has to submit a detailed proposal to the civil aviation ministry by April 15.

Air India has taken loans from a consortium of 20 banks. The banks with the highest exposure to the airline are Punjab & Sind Bank, Bank of Baroda, State Bank of India and IDBI Bank.

Air India has accumulated losses of Rs 15,000 crore. It lost Rs 2,226 crore in 2007-08, Rs 7,189 crore in 2008-09 and Rs 5,551 crore in 2009-10.

The carrier got Rs 800 crore in 2009-10 and Rs 1,200 crore in 2010-11 from the government. A proposed infusion of another Rs 1,200 crore in the current financial year will take the equity base of the airline to Rs 3,345 crore.

Air India is the largest airline in the country in the number of aircraft, but this does not reflect in the number of passengers carried. It is fourth in market share (15 per cent), behind Jet, Kingfisher and IndiGo. It also has the lowest occupancy rate in the market at a little above 60 per cent.

To increase occupancy to over 80 per cent, Air India is offering fares up to 15 per cent less than what low-cost carriers are quoting for the peak summer season, starting May.

It has applied for flying more international flights from Delhi to increase its share in the international market.