AI seeks sovereign guarantee again

Since govt can't infuse the promised sum, airline wants to borrow from banks as cheaply as possible

State-owned Air India has approached the ministry of finance for a sovereign guarantee to raise Rs 2,500 crore from banks, due to the government’s inability to infuse all the required funds into the debt-laden  carrier, given the current economic conditions.

“The current account deficit is at an all-time high. There is a resource crunch in the finance ministry, due to which it has become difficult for the government to infuse funds. There is a shortfall of around Rs 2500 crore in the total sum of Rs 15,600 crore targeted for infusion in the airline in FY13 and FY14,” said a senior AI official.

The ministry of civil aviation has already asked the finance ministry to provide a sovereign guarantee. The official added, “It will enable us to avail of loans at a cheaper rate. We can utilise the money to clear dues to vendors and airport operators.” As of March, the AI group owed Rs 1,540 crore to the Airports Authority of India.

The carrier was scheduled to get an equity infusion of Rs 5,000 crore in 2013-14 as part of a turnaround plan cleared by the cabinet. According to the plan, the government is to infuse Rs 30,000 crore over nine years, starting 2012-13. As much as Rs 10,600 crore was to be infused by the government in the latter year; the carrier got only Rs 6,000 crore.

This would be the second time AI has approached the government for a  sovereign guarantee. In October 2012, the finance ministry had given an unconditional one to the airline for issuing Rs 7,400 crore of non-convertible debentures (NCDs). The bond issue was part of AI’s plan to restructure its short-term debt of Rs 18,000 crore. Of this, while Rs 10,600 crore was converted to long-term debt, with a repayment period of 15 years, the remaining amount was returned to banks through the issue of NCDs.

The bond issue was designed to reduce the airline’s exposure to banks and to reduce its interest rate burden on loans by around two per cent.

AI’s revenues are expected to rise 20.2 per cent to Rs 19,393 crore from Rs 16,130 crore in the current financial year. Net losses in the period are expected to decline 23 per cent to Rs 3,989 crore, as compared to Rs 5,198 crore in 2012-13. The airline is expecting to be positive on operating earnings by Rs 1,040 crore, as against Rs 19.5 crore from this in FY13.