The approval would enable the airline to negotiate with banks to raise Rs 2,000 crore from financial institutions, as the government is not in a position to infuse the scheduled resources into the debt-laden government carrier.
A senior civil aviation ministry official said, “The airline would use the Rs 2,000 crore it raises to clear dues to oil companies and airport operators.” As of this March, the AI group owed Rs 1,540 crore to the Airports Authority of India.
“The current account deficit is at an all-time high. There is a resource crunch in the finance ministry and it has become difficult for the government to infuse funds. There is a shortfall of around Rs 2,500 crore in the total sum of Rs 15,600 targeted for infusion in the airline in FY13 and FY14.” said a senior AI official.
In October 2012, the finance ministry had given an unconditional sovereign guarantee 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. While Rs 10,600 crore was converted to long-term debt with a repayment period of 15 years, the rest 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.