Ai To Get omfort Letter' In Boeing Deal

The finance ministry has softened its earlier stand and has now decided to issue a letter of comfort to bail out Air India in deal with US Exim for providing a $355 million line of credit for buying two aircraft from Boeing.

Senior government officials said the gist of the letter of comfort would be that the government retains the entire shareholding of Air India and will continue to hold 51 per cent stake in the company. The letter is to be issued this week so that Air India can meet the September 30 deadline, sources added.

Earlier, the finance ministry had refused to accede to the demand from US Exim that the government step in with a sovereign guarantee. The change in stand by US Exim has come on the grounds that the cash flows of Air India were not satisfactory and the agency would only be comfortable with a sovereign guarantee.

 

This had jeopardised the entire loan programme and also meant that Air India was exposed to a risk of default on the bridge loan it had already contracted. The credit line was to be used to discharge the bridge loan.

The finance ministry was steadfast in its view of not extending sovereign guarantees to bi-lateral loan agreements. In fact the deal, clinched last September, had come as a major shot in the arm for finance ministry, as it was the first time that the US Exim had waived a sovereign guarantee. Though, the exim bank had taken an in-principle decision a year ago, this was the first project where it had chosen not to seek a sovereign guarantee.

The borrowings were being raised to finance the purchase of two B747-400 aircraft from Boeing of the US. This entailed a line of credit from the United States Exim Bank.

Since only 85 per cent of the cost of the aircraft would be covered by the line of credit, the banks bidding for the deal also had to provide $46.82 million as commercial borrowings.

The contract for this was awarded to Chase Manhattan, from an initial list of 27 contending banks.

Air India had conducted several rounds of bidding before shortlisting eight banks in the final round including Chase Manhattan, Citibank, Chemical Bank, Bank of Tokyo, ANZ Grindlays, Stanchart, Barclays, ABN Amro and Societe Generale.

With US Exim revising its stand, a team of Air India and civil aviation ministry officials had flown to Washington to resolve the stalemate.

Sources said that at the end of the negotiations, US Exim had brought down the stakes and was prepared to accept a letter of comfort.

According to sources, the fact that Air India proposed to purchase a dozen more aircraft and was informally negotiating with Airbus Industrie also led to a softening of the stand by the American export agency.tual="/incs/bottom.inc"-->