Tata group-backed Air India is in talks with commercial banks for around Rs. 3,000 crore loan, which the airline needs to make the down-payment under sale-and-leaseback agreements with lessors, according to people in the know.
The carrier, the sources said, is talking to multiple lenders in connection with the loan.
According to a top State Bank of India executive, several lenders will join hands to extend the loan.
A year after coming into the Tata group fold, Air India had in February this year placed an order for 470 planes: 250 with European plane maker Airbus and 220 with the US-based Boeing.
This order is the world’s second-largest single-tranche aircraft purchase.
The list price of 470 planes is approximately $70 billion.
The order with Boeing is for 190 B737 MAXes, 20 B787s, and 10 B777s aircraft.
The Airbus order comprises 210 A320 family and 40 A350 planes.
A350, B777, and B787 are wide-body aircraft that have bigger fuel tanks, allowing them to traverse long distances, such as India-North America routes.
Aviation industry sources said while the wide-body planes may be purchased by the airline, the narrow-body planes (A320neo family aircraft and B737 MAX aircraft) could be taken under the sale-and-leaseback model.
Under the sale-and-leaseback model, a new aircraft is sold to a lessor, which then immediately leases it back to the airline, helping the carrier free up its cash flow.
Air India did not respond to Business Standard's queries on this matter.
The airline, which has the best credit rating, should be able to get the cheapest funds.
Rating agency Crisil in June reaffirmed Air India’s Rs 37,500-crore bank loan facilities AAA/Stable, factoring in the carrier’s strategic and economic importance to its parent, Tata Sons, which is also AAA-rated.
“These strengths are partially offset by a modest financial risk profile and susceptibility to risks inherent in the aviation business,” the rating agency said.
In 2022-23, Air India’s revenue doubled to around Rs 41,260 crore because of a swift recovery in passenger traffic volume in the post-Covid era, and also due to the recovery of the grounded fleet, aiding in more passenger traffic.
However, Air India continues to make operating losses, largely because of a steep increase in aviation turbine fuel (ATF) prices, coupled with the depreciating rupee, Crisil said, adding the order for 470 aircraft is expected to be delivered over 8-10 years.
Any moderation in ATF prices, along with fleet addition and an expected rise in passenger traffic volume, should drive improvement in the operating performance of the company in 2023-24, the rating agency said.
In June, the airline's chief financial officer Vinod Hejmadi said Air India had made a pre-delivery payment (PDP) to Boeing for a section of the 220 planes that it ordered from the American aircraft manufacturer.
“The funds were arranged from multiple banks at a very competitive rate and converted into USD at the best rates,” Hejmadi said in a message to employees.
PDPs are gradual payments that an airline has to pay to the manufacturer when aircraft are being built.
It can amount to about 15-30 per cent of the aircraft’s price.
Hejmadi said that Air India had a “very short period” to arrange the funds and the entire deal was ably executed by its finance department and the commercial department.
The airline has formally not said when the deliveries of these planes will begin. However, Airbus has stated that the deliveries of A350s will begin this year.
Sources said that the deliveries for A320neo family planes may start in 2026.
Air India currently has 127 aircraft in its fleet, according to aviation analytics firm Cirium.
While 53 of 127 planes are wide-body planes, the remaining are narrow-body planes.
