Lenders led by State Bank of India (SBI) have agreed to restructure the debt of state-owned Air India (AI), but with stiff riders.
First, they have demanded that the government fund Air India’s aircraft acquisition plan by injecting fresh equity.
The government has till now injected Rs 2,000-crore fresh equity into the airline. But the lenders and the company have veered around to the view that it needs to put in another Rs 8,000 crore to execute the turnaround plan. Out of this, the government has already committed Rs 1,200 crore.
| THE PLAN |
|
The banks have also sought a commitment from the management that the airline’s revenue will grow by at least 14 per cent every year for the next 10 years. They also want cost-cutting measures and spinning off of businesses, as envisaged in a report prepared by Deloitte. At present, the airline’s revenue is growing 13 per cent per annum.
In return, the lenders have agreed to convert the Rs 21,200-crore working capital loan into long-term debt. Of this, Rs 11,000 crore will be converted into long-term debt, to be paid over ten years, while the remaining will be converted into compulsorily redeemable preference shares.
The bankers have said if these conditions are met, they will not insist on a sovereign guarantee for the loan restructuring.
Also Read
These points were made at a meeting of the lenders and the management a few days ago.
Top sources say the Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee yesterday set up a committee to look into the debt restructuring plan offer and how much money the government would have to inject as equity. Under the plan, scrutinised by Deloitte and approved by the Air India board, the company has asked for a huge increase in fleet size. It wants to increase the number of narrow-bodied aircraft from 72 to 109 by 2015 and the number of wide-bodied aircraft from 30 to 54. The committee of secretaries and the airline management will work out the funds needed to buy the aircraft. Air India has also committed to a cost-cutting exercise.
It plans to bring down its wage bill from 24 per cent of its total cost in 2010-11 to 11 per cent in 2014-15. It hopes to do so by shifting staff to the new joint ventures being planned for ground handling, cargo and maintenance and repairs. As a temporary reprieve, the GoM yesterday agreed to release Rs 250 crore by the second week of June which will be used for interest payments. It also agreed to release another Rs 123 crore. These payments are being made by the government in lieu of the Rs 1,173 crore which is due to the airlines for movement and maintenance of VVIP aircraft till March-end.