Fitch affirms AAA rating to Rs 700-cr bond issue of Air India

Global rating agency Fitch today affirmed AAA rating, indicating lowest credit risk to Rs 700 crore non-convertible debentures (NCD) of national carrier Air India.

The rating reflects the absolute, unconditional and irrevocable guarantee extended by the Government of India (GoI, Foreign Currency Issuer Default Rating 'BBB-'/Stable) for timely repayment of principal and interest, Fitch said in a statement.

The rating is further supported by the guarantee structure, which ensures timely debt servicing. The guarantee is legal, valid and binding even in the event Air India goes insolvent and files for protection under the Sick Industrial Companies Act or any similar legislation, it said.

As part of the revival strategy for the airline, the government in its Budget for FY13, has proposed equity investment of Rs 4,000 crore in this company.

The aforementioned NCDs were issued on March 26, 2010 and have a tenor of 10 years, with principal redemption as a bullet repayment at maturity, it said.

Air India, fully-owned GoI, reported operating revenues of Rs 13,970 crore and operating EBITDA loss of Rs 2,330 crore.

Fitch notes that failure of the government to meet timely obligation on invocation of guarantee, non-compliance of the payment mechanism for repayment of the rated instrument, and any change in the government's policy that provides protection to company from its creditors in case of its insolvency will lead to a downgrade.