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Air India audit panel wants debt recast
May, 10th 2010

Air Indias working capital requirement is expected to climb to a whopping Rs19,000 crore by the end of this fiscal, if steps are not taken to restructure debt. Already, the ailing airline has Rs17,200 crore loans on its books.

The companys newly constituted audit committee headed by Harsh Neotia Anand Mahindra is also a member has suggested a complete overhaul of the airlines unsecured debt as well as debt taken to fund an ambitious aircraft purchase plan.

The latter amounts to $10 billion, of which $7 billion is under a sovereign guarantee, or underwritten by the government.

We need to bring down both working capital requirements and also raise the $7 billion secured debt at concessional rates. We are paying about 11.5% for the unsecured loans and the airlines total interest and repayment outgo stands at Rs 2,600 crore a year. And it is steadily climbing, a source in the civil aviation ministry told Media.

The audit committee, which held its first meeting last week, has recommended that this huge interest and repayment outgo be brought down to the lowest possible level, the source said.

Of the $7 billion underwritten by the government, about $5 billion has already been secured but perhaps at not the best rates of interest.

The airline has a plan to purchase 68 aircraft from Boeing and another 43 from Airbus.

While the former order is worth about $7.5 billion, the Airbus planes will come for a little over $2 billion.

For the Boeing deal, we have taken about $2.7 billion... at an average interest rate of 2.6%. Another $1.1 billion for some Airbus aircraft has been raised at about 3% despite only 30% of this loan being guaranteed by the government, the source said.

But another $1 billion loan, which has been raised for more Airbus orders from a consortium of Indian banks led by IDBI, comes at an interest rate of 12%, despite the sovereign guarantee.

It is this component and the 11.5% rate for working capital that would be re-negotiated by the airlines management.

Civil aviation minister Praful Patel had indicated in the Parliament
earlier that Air India was expected to incur a loss of Rs5,400 crore during 2009-10.

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