Relief for Air India, Reserve Bank of India okays restructuring of loan

NEW DELHI: Reserve Bank of India (RBI) has approved the restructuring of the airline's working capital loan liability of Rs 22,000 crore. The remaining loan of Rs 21,000 crore taken for aircraft purchase is likely to be taken over by the government for repayment unless AI recovers its financial position to pay them off.

Of the Rs 22,000 crore working capital loan, RBI has approved conversion of Rs 7,500 crore into cumulative preference shares (redeemable after 15 years against 10 years at present); Rs 11,000 crore loan to be changed from 14% interest to 11%, payable over 11 years with a moratorium in first year and Rs 3,500 crore to remain as loan with 14% interest.

AI expects a saving of Rs 1,000 crore per annum from its yearly interest payment of Rs 2,640 crore with these moves. Stating that AI is facing "serious problems", the RBI wrote to State Bank of India - which is leading the consortium of 26 banks with exposure to AI - to ensure that that the restructuring is completed within 120 days. Now, SBI has called an urgent meeting of the 26 banks in Mumbai on Monday to meet that deadline.

The central bank has also spelt out some conditions for AI so that it is actually able to pay back banks. It has told the national airline to cut costs, rationalize routes and most importantly charge the right fares as AI has been accused of charging below-cost fares to show higher aircraft occupancies. Also, the turnaround plan worked out for AI by SBI Caps said the airline will turn around in seven years. RBI has extended this time also and given AI 10 years to show a turnaround.

Apart from the RBI lifeline, AI is now expected to get Rs 6,750 crore this fiscal from the government, which means additional Rs 5,550 crore as Rs 1,200 crore was given earlier. With this money, the airline is expected to pay the vendors like airport and oil companies, apart from other suppliers like caterers as each one of them routinely threatens to cut AI supply over mounting dues.

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