Indian Airlines has applied to the finance ministry for raising around Rs 8,000 crore ($1.5 billion) through foreign currency loans to fund its fleet acquisition.
It has proposed that external commercial borrowings constitute a major chunk of its foreign debt to buy 43 aircraft for Rs 10,089 crore.
According to the initial plan presented by the civil aviation ministry, Indian Airlines expects to raise around Rs 8,000 crore of the Rs 10,089 crore through foreign loans, and Rs 1,224 crore from within the country.
While the government will chip in with Rs 325 crore as additional equity, the rest will be raised through domestic loans.
The ministries will meet again to firm up the plan before approaching the Cabinet. The finance ministry has asked the civil aviation ministry to consider acquiring some aircraft on dry lease to reduce borrowings.
It is also likely to propose reworking the projected cash flow for Indian Airlines, and securitising the income stream against the loans.
The airline has assured the civil aviation ministry that it will partially recover the costs of the new aircraft through inventory management and a flexible passenger fare module.
The finance ministry had earlier ruled out a guarantee to back market borrowings by Indian Airlines to fund its fleet acquisition. However, foreign borrowings by public sector units necessarily imply a government guarantee.
The ministry has been discouraging private firms from borrowing abroad because of the easy liquidity position in the country.
The finance ministry had said the negative net worth of Indian Airlines did not favour such a sizeable investment, even though it was taken off the selloff list. The airline had asked for a letter of comfort to back its proposal.
Indian Airlines has been making losses consistently. In 2000-01, its net loss stood at Rs 59.17 crore, and in 2001-02 Rs 246.75 crore. The estimated loss for 2002-03 is Rs 245.50 crore.
The airline
