Sale of the five 777-200s will alone fetch the carrier $500 million, and the 747s are expected to fetch $30 million each
Mumbai: Air India, the money-losing flag carrier that is seeking a government bailout, is expected to raise about $600 million (around Rs. 3,200 crore) by selling seven planes as part of a plan to pare its debt by March, according to two airline executives familiar with the development.
Of the seven aircraft, five Boeing 777-200 long-range planes will be sold and taken back on lease for 12 years, while two Boeing 747-400 aircraft are meant for outright sale, the executives said, requesting anonymity.
Sale of the five 777-200s will alone fetch the carrier $500 million, and the 747s are expected to fetch $30 million each, they said.
Air India has also sought the Reserve Bank of India’s (RBI) approval for a special arrangement to treat the company’s debt, if the carrier fails to pay dividends due to the banks within the prescribed eight-quarter limit.
The airline, which has a total debt of Rs. 43,777 crore, including loans and dues it owes to vendors such as oil companies and airport operators, is in the midst of a debt restructuring programme scripted by SBI Capital Markets Ltd.
Representatives of investment bankers and lenders said a final approval for the financial restructuring plan by RBI may happen next week.
If Air India is able to sell the seven planes and secure a final approval from the central bank for restructuring, it can reduce $600 million from total debt and ensure savings of Rs. 1,000 crore a year in terms of interest payouts. The airline has accumulated Rs. 13,300 crore in losses since its merger with state-owned Indian Airlines in 2007.
“Besides selling two Boeing 747s and five Boeing 777s, we have floated tender for sale-and-leaseback of seven Boeing 787s. We have already got four proposals, but we are extending the tender to two weeks more for more and better proposals,” said one of the executives cited above.
A sale-and-leaseback agreement typically allows airlines to generate additional capital and is often a stop-gap arrangement to project a healthier balance sheet as the debt will not be reflected on its books.
Large leasing companies such as International Lease Finance Corp. and GE Capital Aviation Services buy planes from airlines and lease them back to the carriers.
Air India had agreed in 2006 to purchase 27 Boeing 787s. But a board meeting in November decided that the carrier will opt for a sale-and-leaseback arrangement to avoid additional debt burden on its books.
The Air India executive said the carrier has repaid $800 million of loans since September 2007. “The sale-and-leaseback agreement is backed by the sovereign guarantee. While selling seven Boeing 787s, we will fetch a premium,” he said.
The first Boeing 787 plane will join Air India’s fleet by the end of this month. The delivery of that plane will be taken by the company selected for the sale-and-leaseback arrangement. The 787 will replace the routes being serviced by the 777s.
A sovereign guarantee gives creditors the assurance that the government will step in to repay a loan if the borrower is unable to do so.
The second Air India executive said the airline’s debt recast proposal seeks to convert Rs. 11,000 crore of short-term working capital loans into long-term debt, thus extending the carrier’s repayment period. He said the airline will also turn Rs. 7,000 crore of debt into cumulative preference shares bearing an 8% dividend rate that lenders will subscribe to.
“We have requested RBI to extend the tenure for paying 8% dividend on cumulative preference shares beyond eight quarters. Air India may not be able to service the dividend in eight quarters. Hence, we’ve asked RBI to extend this time period considering the profitability prospects of banks,” he said.
State Bank of India chairman Pratip Chaudhuri said Air India may not be able to make a profit to pay dividends on preference shares in the near term, and hence the carrier is asking for more time to pay the dividend.
“But as a lender we are in an advantageous position and relatively secured. I don't see any problem in debt restructuring,” Chaudhuri said.
Other lenders to Air India include Bank of India, Punjab National Bank, Bank of Baroda and Central Bank of India.
A senior airline consultant, requesting anonymity, said Air India will be able to address the key concern of servicing its heavy interest outgo if the debt restructuring proposal is approved according to its terms.
“The total outgo in terms of interest for Air India is Rs. 3,400 crore, including working capital and long-term loans. The debt restructuring will give them a relief of Rs. 1,000 crore. The selling of planes may yield more cushion,” said the consultant, who advises several airlines excluding Air India. “The real challenge is to bring back the passengers that they have lost to private carriers. They have to enhance their service levels and ensure reliability. It has to strike a balance between financial and operational turnaround.”
Apart from the financial restructuring programme, the airline has asked the government for an immediate equity infusion of Rs. 6,750 crore to tide over the crisis.
Air India is seeking a total equity support of Rs. 42,920 crore till fiscal 2021. The carrier also wants government guarantees for aircraft loans worth Rs. 30,584 crore till fiscal 2021, according to the latest plan submitted to the government.
Indian airlines are set to post a record loss of $2.5 billion on a total projected revenue of $10 billion this fiscal year, according to the estimates of Centre for Asia Pacific Aviation (Capa). Private airlines, excluding IndiGo, will account for $600 million of that loss; the rest will be borne by Air India, according to Capa.
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