Cash-strapped Air India (AI) will shortly renegotiate credit terms with foreign lenders including Exim Bank of the US, Kfw and other European banks to stagger out repayment of its $ 9.5 billion debt beyond 12 years and secure a moratorium of 3-5 years. This is aimed at gaining more time to mobilise funds for making repayments. Renegotiating the credit terms also would translate into deferred aircraft acquisition as the two are linked. AI had signed an arrangement for $7.5 billion credit from US Exim Bank in October 2006 to purchase 68 new aircraft from Boeing on government guarantees. The carrier has also borrowed about $2 billion from European banks, including German government-owned Kfw, to buy 43 aircraft from Airbus. “The loan is to be repaid in 12 years. Considering our financial health, it is not possible to repay it on time,” a senior official of Air India said on the condition of anonymity.
“We have asked them to give a moratorium which will extend the total credit period,” he said. AI CMD Arvind Jadhav told Financial Chronicle, “We have not started negotiation with the banks yet. First we need to prepare the documents and present it in the (Air India) board. Once the board approves it, then we will take it up with US Exim Bank and others.” Delays in aircraft delivery by Boeing and Airbus have come handy for Air India to renegotiate credit terms with banks. Boeing has delayed delivery of 20 Boeing-787: Dreamliner aircraft to replace AI’s aging A310 planes. Crucial to renegotiation of credit agreements with the US and European bankers’ may be the waiver of penalty clause that Air India may attract in the case of staggered repayment. Air India is also likely to approach the finance ministry for waiver of guarantee fees payable in such mega credit contracts. In this case, the guarantee fees are expected to be two per cent of total credit amount. Air India is also contemplating slashing the total loan amount of $ 9.5 billion as the airline may buy fewer aircraft. But, this will be linked to a final decision on the number of aircraft to be acquired by the national carrier. “The exact amount of foreign loan would be less than $ 9.5 billion as many orders have been postponed by the airline. Also, Boeing has delayed the delivery of 787, which saves quite a lot in terms of lower loan,” the official said. Financial Chronicle’s mail sent to US Exim Bank remained unanswered. Meanwhile, Air India has begun talks with Indian banks to restructure its loans. Besides foreign loan, it also has domestic borrowings worth Rs 16,000 crore. About, Rs 10,000 crore of this total amount is bracketed in high-cost category that needs to be retired immediately to save on the interest liabilities. In August, Jadhav had said the airline will try and swap its high cost debt into low borrowings. There are 21 Indian banks that have provided funds to Air India at rates as high as 10 per cent.
The cash strapped carrier’s losses have been reported to be over Rs 7,200 crore during 2007-08 and 2008-09. The carrier has been on a cost-cutting spree – it has reduced the size of its fleet, withdrawn from non-profitable routes and cut productivity linked incentives for top management. The government has assured equity infusion of Rs 800 crore into the ailing carrier before March 2010. But the funds would come in two tranches of Rs 400 crore each subject to Air India being able to make substantial cost savings.
Source: Financial Chronicle
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