Air India is looking for a restructuring of its loans from banks with intentions to reduce the interest burden and become profitable. The national carrier is looking to get lenders to cut the interest rate on loans of Rs 10,500 Crore, on which it is paying 10.1 per cent. Chairman Ashwani Lohani said, “Debt restructuring is a must. Every year, Rs 4000 Crore goes towards debt servicing alone. But we will seek restructuring only after becoming operationally profitable either this fiscal or next. We have so far not begun the process of debt conversion.”
The government sector airline is able to access funds at a much lower rate than other players. Banks typically charge two per cent points higher than the base rate. SBI's current base rate is 9.3 per cent, Air India has loans of Rs 48,400 Crore, including working capital and term loans of Rs 22,000 Crore, aircraft-related debt of Rs 19,000 Crore and Rs 7400 Crore that it had raised via non-convertible debentures. In 2013-14, finance costs accounted for over 15 per cent of the expenses, and was the second highest spending head after staff costs, which made up for over 35 per cent of the total expenditure of around Rs 26,500 Crore. Sources said there were three options for restructuring the loans. One was to get banks to convert a part of the loans into equity. The second was to swap the “high-cost debt” with non-convertible debentures, which AI executives said, would cost 7-8 per cent, resulting in an annual savings of around Rs 200 Crore. In the third model, banks could be issued preferential capital with a fixed rate of dividend payable.
An official said, “This way there will be no dilution of equity. SBI Caps had suggested this model but it did not find favour with banks earlier. Anyway, most of our loan is from government banks and converting to equity will still mean that AI continues to remain fully government-owned.” However, AI's wish list goes beyond reduced rates. It also wants banks to factor in its asset base of Rs 42,000 Crore, which have turned profitable in recent quarters.
