Lifeline: Rs 4,000-cr bonanza to rescue Air India

Equity infusion of Rs 4,000 crore into Air India, proposed by Finance Minister Pranab Mukherjee in Union Budget 2012-13, will improve the debt-equity ratio of the airline to a level considered comfortable and help open the doors of banks for them.

The infused funds would be used to immediately clear the dues of oil companies, airport operators and employees' salaries.

The airline's debt-equity ratio will improve to 1:6.5 from 1:13 now. Industry analysts say a debt equity-ratio of 1:6 is considered comfortable for airlines.

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The national carrier has a debt of over Rs 43,000 crore and accumulated losses of over Rs 20,000 crore.

The government has, in the Budget, proposed an equity infusion of Rs 4,000 crore into the national carrier during the next financial year, increasing its equity to Rs 7,345 crore. The infusion is over and above the Rs 3,200 crore infused into the airline in the last two financial years.

A top Air India official said the funds would be used to liquidate the outstanding dues. "This infusion is part of the financial restructuring plan and the money infused will be used to liquidate the outstanding dues," he said.

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The carrier will pay Rs 2,500 crore to oil companies, Rs 1,200 crore is due to be paid to airport operators and Rs 580 crore as employees' salaries.

Another senior Air India official said the next financial year could be a revival year for the beleaguered airline.

"Apart from the equity infusion, we will also see some decision coming on the compensation for Boeing 787 Dreamliners and debt restructuring plan being cleared, reducing our interest payment burden," he added.

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Air India is negotiating for a compensation of around Rs 2,500 crore for a three-year delay in the delivery of Dreamliners. It is also discussing a proposal to do a sale and lease-back of the aircraft and not buy them.

"With the sale and lease-back, we will not have to take the financial burden of financing the acquisition deal of the aircraft," the official said.

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The per-unit price of Dreamliners has appreciated from over Rs 700 crore in 2005 to Rs 900 crore now.

The debt restructuring of Rs 24,000 crore short-term loans will help Air India reduce its interest burden by at least Rs 700 crore.

The annual interest payment outlay made by Air India to service its debt is close to Rs 1,800 crore.

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Analysts also feel the financial improvement of Air India will be good for the industry.

Air India has launched a fare war in the industry to increase its aircraft occupancy, leading to straining the yields of all other carriers.

With the airline's finances getting better, the overall situation of the aviation industry will also improve.