Aircraft Debt Financing: AI Plans To Raise Rs. 6,150 Cr Short-term Loan

Air India - Aviatorsbuzz
Air India Boeing 787-Dreamliner. Source: AI

Looking to repay its aircraft debt towards six Boeing 787 Dreamliner’s and one Boeing 777, national carrier Air India is seeking to raise ₹6,150 crore through a short-term loan by the month-end.

A bid document put out by Air India said that proceeds of the loan, which would carry a sovereign guarantee, would be utilized to refinance foreign currency bridge loans taken to buy seven Boeing 787 and 777 planes. It is also offering aircraft such as Boeing 787 and 777 as collateral for the loan, which will be repaid in a year.

Air India will raise the total amount in seven tranches, which would consist of three tranches of ₹790 crore each, three tranches of ₹925 crore each, and one tranche of ₹1,005 crore, according to the tender document.

The interest rate payable by the national carrier will be linked to “MCLR/GSEC rates with reasonable spread as margin”. The marginal cost of funds-based lending rate or MCLR is a tenor-linked internal benchmark. It is determined by the bank depending on the period left for the repayment of a loan. Typically, banks cannot lend at a rate lower than the MCLR of a particular maturity for all loans linked to that benchmark.

The debt-laden Air India’s endeavour to raise money comes amid the government’s proposed plan to divest its stake in the airline against the backdrop of the pandemic that has crippled the aviation and travel sectors.

In October, the government had changed terms for selling the distressed carrier. Air India will now be offered on its enterprise value and bidders can quote the level of debt they are comfortable with.

The airline has current liabilities and provisions, including short-term loans and trade payables of ₹70,686.6 crore and a net debt of ₹58,255 crore at the end of FY 19. However, the government has transferred ₹29,464 crore of this debt from Air India to a government-owned special purpose vehicle, Air India Assets Holding Company Ltd.

The government has, however, turned down the national carrier’s request for equity infusion, instead agreeing to stand as a sovereign guarantor for the airline’s debt.

A report in The Indian Express quoted senior Air India official as telling the newspaper that the flag carrier was awaiting fund infusion of Rs. 500 crore from the central government but the proposal was not approved given the COVID-19 pandemic situation.

“The approval for guaranteeing the loans for one year is a huge relief as the airline still has working capital and other requirements by the time that it gets disinvested,” the official was quoted as saying.

The first deadline for submitting bids during the government’s attempt to sell its entire 100 per cent shareholding in Air India — along with Air India’s 100 per cent holding in Air India Express, a low-cost carrier, and 50 per cent share in Air India-SATS, a joint venture in which Singapore Airport Terminal Services holds the balance 50 per cent — was March 17.

According to the Civil Aviation Ministry, 8,753 repatriation flights were operated by the Air India Group, which is leading under the Vande Bharat Mission till November 10, carrying over 11.24 lakh passengers. Of these, 4,375 were inbound flights carrying 7,04,103 passengers and 4,378 were outbound flights with 4,20,490 fliers.

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