Govt looks to rejig Air India debt to sweeten deal for buyer

PMO is learnt to have suggested that Air India should be owned and run by domestic investors only

Air India will rejig its debt before going under the hammer to make itself lucrative to a potential buyer.

This is the second attempt to restructure the government-owned airline’s debts. Officials said state-owned banks would soon start a fresh round of discussions with Air India on reducing its debt burden.

Of Air India’s Rs 46,570-crore debt, around Rs 16,000 crore is on account of aircraft loans, which were raised partially from EXIM Bank, foreign institutions and through non-convertible debentures. These loans are guaranteed by the government.

Sources said the aim was to restructure working capital loans in return for assets and land. Air India has been lent working capital by a consortium of 25 banks, led by the State Bank of India

“The carrier cannot be sold without restructuring its debt. Discussions between public sector banks and Air India will take place soon,” said a finance ministry official. 

Civil Aviation Minister Ashok Gajapathi Raju said it could be difficult to find a buyer with that much debt. “We are exploring all options,” he said.

“Whatever decisions the banks take will be commercial ones. Whether that involves converting debt into equity or other ways is up to them.” the finance ministry official said

“There will be no pressure of any sort exerted on banks from the government to reach quick resolution. They will have to take business decisions,” the person added.

An earlier attempt at restructuring Air India’s debt into equity was nixed by banks that did not want shares in an airline that would be difficult to encash.

The government’s policy think-tank NITI Aayog in a recommendation to the prime minister’s office has advocated 100 per cent strategic disinvestment in Air India. 

The Aayog is of the opinion that more than half of the airline’s debt can be written off to make the deal as sweet as possible for buyers.

“Negotiations are on between the finance and aviation ministries on the quantum of debt that the Centre could write off,” an official said.

The PMO prefers Air India be owned and run by domestic investors. However, an aviation ministry official said no domestic player had the muscle to take over Air India’s debt.

Civil Aviation Minister Ashok Gajapathi Raju said Air India’s debt made it difficult for the government to find a buyer and all options would be explored.

Foreign airlines can own up to 49 per cent stakes in Indian carriers. Singapore Airlines and AirAsia own up to 49 per cent in Vistara and AirAsia India, respectively, while Etihad has a 24 per cent stake in Jet Airways.