State-owned National Aviation Company of India Ltd (Nacil), which runs Air India, has approached the government to raise $2.3 billion through external commercial borrowings (ECBs) as part of a plan to restructure its high-cost working capital debt. Air India had also applied to the finance ministry late last month to provide it with a sovereign guarantee for the foreign loan. If cleared, the ECB will help it substantially reduce its ballooning debt burden.
"Raising money through ECBs will secure our working capital loans and help us reduce the interest burden on working capital loans by 3-4 per cent," said a senior Air India official, who did not wish to be identified.
Air India has a working capital debt of Rs 18,500 crore (Rs 185 billion) and pays Rs 1,800 crore (Rs 18 billion) as annual interest on this. A 3-4 per cent saving would translate into Rs 550-740 crore (Rs 5.5-7.4 billion) a year.
"We are not asking for any extra commitment from the government, as we have guarantees that can be used to bring down our interest cost," the official added. The airline has unutilised guarantees amounting to over $1.3 billion, meant for acquiring aircraft.
The remaining $1 billion will come from the government's $3.3 billion for 30 Boeing aircraft. "As the delivery of certain aircraft has been delayed, we are confident of negotiating and saving at least $1 billion to be utilised to secure working capital debt," a letter sent to the finance ministry stated.
The national carrier has accumulated losses of Rs 14,000 crore (Rs 140 billion) over the last four financial years and has a total debt of Rs 48,000 crore (Rs 480 bilion), including Rs 3,000 crore (Rs 30 billion) in long-term debt to acquire aircraft.
Raising money through ECBs to meet working capital requirements needs special permission, as current regulations specify that ECBs are to be used only for domestic asset creation.
The Reserve Bank of India, which has to clear Air India's debt-restructuring proposal, has asked airlines to fulfil certain conditions. "RBI has asked us to get our financial projections vetted by an aviation analyst and obtain a commitment from the government of India on equity infusion," said the official.
RBI recently approved the debt restructuring of Vijay Mallaya-owned Kingfisher Airlines. The country's three biggest carriers - Jet, Kingfisher Airlines and Air India -have a combined debt of Rs 63,045 crore (Rs 630.45 billion).
Nacil, which at the time of the Air India-Indian Airlines merger had losses of Rs 8,800 crore (Rs 88 billion), expects operational profit by the end of this fiscal. The airline posted operational losses of Rs 926 crore (Rs 9.26 billion) at the end of H1.
