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India Okays Turnaround Plan For Air India

4/12/2012 8:06 AM ET

To rescue the debt-strapped Air India, the Indian government on Thursday approved a turnaround plan or TAP to restructure the operations and the finances of the carrier, including infusion of additional equity, reports said.

The Civil Aviation Minister Ajit Singh announced this to reporters after a meeting of the Cabinet Committee on Economic Affairs (CCEA). The CCEA approved the TAP and the airline's financial restructuring plan (FRP), which includes additional equity infusion by the government.

As part of the airline's restructuring plans, the government had announced in the 2012-13 Budget that an amount of Rs.4,000 crore would be infused during the current fiscal. This would raise the airlines' equity base to Rs.7,345 crore.

CCEA also gave approval for induction of the much-awaited Boeing Dreamliner-787, as part of the TAP, official sources said, adding that the issue of allowing foreign airlines to invest in Indian carriers could be taken up by the Cabinet next week.

The orders for Dreamliners was placed on US aircraft manufacturer Boeing in 2005. The delivery of the first 27 Dreamliners ought to have commenced from 2009, but deferred due to various reasons, including labour unrest.

The SBI-led consortium of 19 banks had last month approved the FRP which includes debt restructuring of Rs.18,000 crore by the banks and a committed equity infusion by the government. The FRP would provide relief to Air India from its debt servicing obligations on working capital, in the form of a substantial reduction in interest outlays while giving it the necessary time to improve its operational efficiency and implement the TAP.

As part of the FRP, the airline signed the Master Restructuring Agreement, Working Capital Facility Agreement, Appointment of Facility Agent Agreement and Appointment of Trustee Agreement with the banks' consortium on March 31. A major highlight of the agreements included conversion of around Rs.10,500 crore of the airline's working capital into long-term loan, carrying an annual interest of 11 percent.

The first year interest would accumulate in a funded interest term plan, the sources said, adding these would lead to substantial savings of around Rs.1,000 crore in 2012-13 itself.

In addition, non-convertible debentures (NCDs), guaranteed by the government, worth Rs.7,400 crore, would be issued and subscribed by the investors. The proceeds from the NCDs would be used to repay the lenders, they said. Besides this, part of the working capital of around Rs.3,500 crore would be restructured as cash credit arrangement.

Under the FRP, Air India has proposed that the government should infuse equity of about Rs.30,231 crore in the 2012-21 financial period.

The government has so far infused equity of Rs.800 crore in 2009-10, Rs..1,200 crore in 2010-11 and another Rs.1,200 crore in 2011-12.

The national carrier has outstanding loans and dues worth Rs.67,520 crore, of which Rs.21,200 crore is working capital loan, Rs.22,000 crore long-term loan on fleet acquisition, Rs.4,600 crore vendor dues besides an accumulated loss of Rs.20,320 crore.

by RTT Staff Writer

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