AI to turn around earlier than expected

AIR INDIA POSTED A NET LOSS OF ₹3,836.77 CR IN 201516 AGAINST A NET LOSS OF ₹5,859 CR A YEAR EARLIER

Loss-making Air India Ltd (AI) hopes to achieve turnaround targets and post a profit at least two years sooner than expected, aided by improved operational efficiency, better passenger load factor, and lower fuel prices, an official said.

Under the revised plan charted by SBI Capital Markets Ltd, the debt-laden national carrier expects to become profitable at the PAT (profit after tax) level by 2019-20 as against 2021-22 estimated earlier. It hopes to become cash positive by 2018-19 as against the earlier plan of 2020-21, said S Venkat, adviser finance, AI.

By 2020-21, the airline hopes to bring down its debt by ₹15,000 crore. Of this, the company plans to pay off ₹9,000 crore of debt taken for acquiring aircraft. The remainder will depend on whether lenders agree to swap debt for equity, said Venkat.

At the end of 2015-16, Air India had a debt of ₹46,000 crore.

In an effort to reduce the airline’s interest burden, AI chairman and MD Ashwani Lohani wrote to all its lenders last month requesting them to link the interest rate to MCLR (a marginal cost of fund-based lending rate) instead of base rate,he said.

MCLR is lower than the base rate of a bank, as it calculates interest on a marginal cost of funds, rather than average cost of funds. At State Bank of India (SBI), for example, the one-year MCLR is 8%, compared with a base rate of 9.25%.

Officials at SBI, the lead lender to the airline, were not available for comment.

The airline pays ₹350 crore in interest every month. The alignment of interest rates, the spokesperson pointed out, would lead to savings of interest of ₹150200 crore on a ₹15,000-crore loan.

Even as the airline is in talks with banks for converting debt to equity—a plan that has not a made much progress so far due to banks’ unwillingness— it is looking at reducing their overall exposure through a governmentbacked non-convertible debenture (NCD ) of ₹10,500 crore. It has sent a proposal to the finance ministry for issuing an NCD.

The total exposure of banks to the airline is around ₹30,000 crore. “We still haven’t received any restructuring plans from the management at Air India. However, the account is not an NPA, as they have been paying their dues,” a senior official at a midsized public sector bank said.

The NCD will reduce banks’ exposure to the airline to less than ₹20,000 crore, said Air India’s Venkat.

India’s largest airline has continued to fly with the help of a government bailout package. So far, it has received ₹23,993 crore of a ₹30,231-crore equity infusion promised by the government under a financial restructuring plan in 2012.

AI has a fleet of 140 planes.