Government plans to halve Air India's debt under its revival plan

Air India

Nikita Vashisht  Moneycontrol News 

The government has chalked out a plan to halve the debt of Air India by transferring as much as Rs 29,000 crore from its books to a special purpose vehicle (SPV), a senior aviation ministry official said on November 29.

"Currently, there is debt (of Rs 55,000 crore) on AI's books of accounts, which is required to be serviced from its revenues, and over which there are other collateral charges. The idea is to move this debt from Air India to this SPV with government's guarantee, leaving AI with balance debt of Rs 26,000 crore on its books," the official said, adding that the debt, which will be owned by the government, will not be serviced from the state-carrier's revenues.

The official said that the government will sell the non-core real estate assets of the airline to liquidate the debts it has taken over.

"As and when the non-core assets are sold, the residual amount of debt value in the SPV will keep getting reduced," the official said.

Debt-laden Air India has been under severe financial stress due to high air turbine fuel (ATF) prices and falling market share.

The airline, that has been bleeding for over a decade, has been trying to raise funds by monetising its assets in order to finance its debt.

Sources said that government has identified the lenders whose debts will be transferred to the SPV, which will be known as Air India Asset Holding Company Ltd.

"Air India will talk to the lenders regarding transfer of debt from AI to SPV. If, however, it is found that there is difficulty in getting various clearances from lenders then we would like to explore other options. For example, instead of asking the current lenders (who have lent Rs 29,000-30,000 crore) for their consent, the government may ask the SPV to raise money and pay off the lenders. But this will essentially be the finance ministry's call," official sources said.

The government on November 29 announced that it will sell Air India Air Transport Service Ltd (AIATSL), the ground handling arm of Air India, through the above mentioned SPV by the end of this fiscal.

AIATSL is the largest ground handling company in the country. According to officials from Air India, the company has close to 80-85 percent share of the domestic and international ground handling business in India.

Sources have indicated that the airline is trying to reduce its expenditure and increase its revenue as per the new revival plan.

"We have identified eight to 10 areas where revenue can be increased and expenditure can be decreased. The total of this is roughly around Rs 2,000 crore per annum," they said.

The government is also of the view that most of Air India's debt is historical and that it's debt servicing capacity had improved.

"Its debt servicing rate is around Rs 4,500 crore now," the official said.

The government had tried to sell off 76 percent of its share in the airline early this year which failed to attract any bid from investors.

According to government sources, bidders were wary of macroeconomic conditions and thus didn't bid.

"When we had initiated the talks with investors, the economic conditions were favourable. But by the time the bids had to be submitted, the tides had turned," he said.

According to sources, buyer of Air India would have to take over about Rs 33,390 crore of debt from the state carrier.

The decision to transfer debt of Air India was taken at the meeting of Alternate Mechanism, a group headed by Finance Minister Arun Jaitley, to find ways to divest the airline.