The finance ministry has rejected Air Indias proposal to raise $100 million by securitising its future revenues, as the existing laws do not provide for such a move.
Air India was planning to raise the funds from a consortium of foreign banks.
The national carrier had, earlier this year, sought permission to raise $100 million as loan against revenues to be generated by it in future to meet debt servicing and working capital requirements.
Also Read
Securitisation of revenue proceeds is an accepted global practice and top corporates are increasingly resorting to this route. India needs to update its policies to match global trends, said a banker.
Air India is the first Indian company to consider raising loans against future revenues. It is currently borrowing from international as well as domestic banks to repay debts and pay the instalments towards the recent acquisition of two Boeing 747 aeroplanes.
The company owes about Rs 100 crore to Indian Oil Corporation, besides smaller amounts to other vendors, civil contractors and goods suppliers.
However, higher revenue in January-May this year has helped the company pay off most of its other debts as well as meet its working capital requirements.
Air Indias revenues improved once the hefty discounts offered by most airlines last year were withdrawn. The fares to Europe went up to Rs 35,000 from Rs 20,000 while the price of a ticket to the US rose to Rs 44,000 from Rs 27,000.
Air India had broken even in the January-March period while in April and May the company reported a modest profit, said sources. A good load factor, too, has boosted the companys earnings. Its current load factor is 67-68 per cent, and there are no seats available on flights out of India.
With the conclusion of Haj operations in the third week of May, Air India has decided to start flights to Toronto and Amsterdam, and enhance its frequencies to Frankfurt and Paris from June 1. An increase of 2,000 seats in the total capacity out of India is on the cards.
Will now have to see whether, with the availability of the additional 2,000 seats, the demand will still continue to outstrip capacity, whether the capacity will match the demand, or whether the discounting game will start all over again, said a source in the industry.