MUMBAI | NEW DELHI: In a move intended to restore the confidence of lenders in debt-laden and loss-making national carrier Air India, the ministry of civil aviation has asked the finance ministry to issue a letter of comfort to banks.
Thirteen banks, including SBI, Punjab National Bank, HDFC, Central Bank and Bank of Baroda, have lent Air India 22,000 crore by way of working capital, which is used to meet day-to-day expenses such as salaries and fuel. Air India has missed payments in the past and the banks were considering classifying loans to Air India as non -performing-assets or NPA.
"A letter of comfort on working capital loans is expected to be a part of the financial restructuring package. We have a meeting next week and should know what happens shortly," Naseem Zaidi, the civil aviation secretary told ET.
A letter of comfort is not a guarantee that the government will pay if Air India fails to repay its debt. But it reaffirms state support for the beleaguered airline. The finance ministry is also considering issuing a letter of comfort for its loans to Standard Chartered the British headquartered bank for a $280 million loan to Air India to buy spares and maintenance materials. Air India's spends 1,000 crore annually buying spares
"Standard Chartered has asked for a letter and we have asked the finance ministry to give it to us," a civil aviation ministry official told ET on the condition of anonymity.
A bank official, on condition of anonymity confirmed to ET that a verbal assurance has been received from the ministry but a letter has not come to the Bank as yet. Standard Chartered, which earns 30% of its revenues from India, has a substantial exposure to Air India and has also funded the acquisition of aircraft for $1 billion, loans that are still on its books.
Air India, with a total debt of 44,000 and 14,000 crore in accumulated losses, is facing perhaps the biggest crisis in its history. It has appointed SBI Caps to suggest a turnaround plan.
"This letter of comfort is sought by the banks as Air India is converting these working capital loans to long term loans for reduction in the costs of interests to a base rate that is currently 10%-10.5% from the current rate of rate of interest of 11.5%," he said. Air India targets a saving of 1,000 crore annually by bringing down its interest rates. A letter of comfort cannot be used by lenders to make the government pay in case of a default.
"A letter of comfort just reaffirms the credentials of a company - the fact that it is credit worthy, but does not oblige the government to repay in case of default," a ministry official said.
A group of officers, including representatives of the finance ministry and the planning commission, are putting together a turnaround plan which will be presented before a Group of Ministers next week.
The Group of ministers meeting that is likely o to take place next week is slated to discuss a final restructuring proposal which will include debt restructuring, a business plan and fleet acquisition. Air India officials say that the airline would seek between 6,000 and 7,000 from the government by way of equity.
The government has already put 2,000 crore into the airline and this year's budget has a provision for 1,200 crore.
In a related development, Air India also repaid as bridge loan of 5,500 crore it had taken from IDBI and ICICI has converted the debt into bonds maturing 15 to 20 years from now and a coupon rate ranging from 9.8% to 10.03%, an Air India official said.
Zaidi said the airline will settle for expanding its fleet from 135 to 153 by 2015 and further to 235 by 2020 by leasing aircraft. "No aircraft purchase except Dreamliners (Boeing 787)," he said.
Source: Economic Times (Air India Online Booking)
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