Air India finalises $300-mn ECB loan

Air India (AI) will sign an agreement with Citibank and State Bank of India to raise $300 million (~1,900 crore) of external commercial borrowing.

The loan is backed with a sovereign guarantee and will be used for working capital, payment for aircraft spares and bridging the gap caused by delays in equity infusion by the government. The first tranche will be released next week, AI sources said. The loan is repayable over five years and carries annual interest of around 2.5 per cent.

So far, Centre has made an equity infusion of about ~18,000 crore in the airline, owned by it. For 2015-16, AI sought ~4,277 crore but only ~2,500 crore was announced in the Union budget. The civil aviation ministry told a parliamentary panel the airline would default on its loan repayments if the additional funds were not released. Last week, in the supplementary budget, finance minister Arun Jaitley announced another ~800 crore in equity.

The government decided in April 2012 to grant the carrier a performance-linked equity bailout of about ~30,000 crore. Of this, ~18,400 crore has been pumped in and the rest will be infused by 2020-21. The government, however, has been trimming budgetary support and pushing AI to break even. In the interim budget last July, it had earmarked ~6,500 crore as equity infusion in 2014-15. This was later cut by ~720 crore.

For 2014-15, the airline is expected to see a consolidated net loss of ~5,400 crore, the same as 2013-14, despite substantial savings in the fuel bill. However, those gains have been offset by lower than expected revenue and an increase in engineering and maintenance costs, and lease rents. The airline’s accounts are yet to be audited and the profit and loss figures are provisional.