The financially struggling Air India has received a new ‘lifeline’ – the Indian Government has approved a $5.8 billion (Rs300 billion) restructuring loan to save the airline.
This capital injection will be made over an eight-year period, 2012 – 2020. The government-owned flag carrier airline operates a fleet of Boeing and Airbus aircraft. It services Asia, North America, and Europe. Over the past five years, the airline has encountered several problems:
- Increasing financial losses due to weak demand and high fuel costs
- Escalating bank loan costs and interest charges as the airline failed to make loan and interest payments
- Disgruntled employees as the airline failed to pay salaries
- Strong competition from private Indian carriers
- Deteriorating customer service
As part of this restructuring plan, the Indian government will help the airline through several ways:
- An immediate cash advance of Rs67.5 billion
- Debt repayments to banks of Rs74 billion
- Equity injection of Rs45.5 billion
- Several loans amounting to Rs189 billion
- After consultation with the government, the airline’s banks will convert short term working capital loans of Rs110 billion into long term loans
The government will also assist the airline to access three Boeing 777-300ERs and 27 Boeing 787s on a sale and leaseback basis.
The Indian government will set up a committee that will oversee the airline’s restructuring process. The committee will also monitor the airline to ensure key performance indicators are met, such as fleet utilisation and on-time performance.
Air India has been experiencing protracted financial distress – early signs were noticed in 2006-2007 when the airline recorded a loss of Rs7.7 billion. In 2009, SBI Capital Markets Ltd, India’s top investment bank and project advisor, was hired to formulate a blueprint for the airline’s recovery. As the airline’s financial woes worsened, the airline sold one Boeing 747-300M and three Airbus A300 in March 2009. In April 2009, the government gave the airline a loan of Rs.32 billion as the airline struggled due to high loan and fuel costs.
With this recent capital injection, the government expect the airline to return to profitability by 2018.