Interest on AIs loans may be reduced with govt guarantee

After receiving a shot in the arm of Rs 800 crore recently,state-owned Air India may get some relief in the form of a letter of comfort from...

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After receiving a shot in the arm of Rs 800 crore recently,state-owned Air India may get some relief in the form of a letter of comfort from the government to convert its high-cost loans into low-cost ones. The carrier has mopped up loans of around Rs 18,000 crore,of which nearly Rs 11,000 crore are high-cost loans.

The move has been given in-principle approval by the finance ministry,after being considered by the group of ministers,constituted to look into aviation-related issues,in its last meeting,said senior government officials. For a long time now,the loss-making carrier had demanded government guarantee for the loans so as to bring down the annual interest burden of around Rs 2,000 crore.

Air India raised around Rs 1,000 crore after the board enhanced its working capital limit from Rs 17,000 crore to Rs 18,000 crore. The rate of interest hovered around 11 per cent,said an airline official.

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It can be brought down further by at least 300 basis points if government extends guarantee, the official said. The carrier had to resort to enhanced working capital limits faced with cash crunch and piling dues of its various vendors to the extent of Rs 2,000 crore. Further,financing for acquisition of 35 aircraft has resulted in a total exposure of $2.6 billion of long-term debt. During the ongoing Budget Session in Parliament,civil aviation minister Praful Patel admitted that the carrier is likely to post losses to the tune of Rs 5,400 crore during 2009-10. While the carrier garners annual revenues of around Rs 14,000 crore,its expenditure hovers around Rs 19,000 crore,leaving a gaping hole of around Rs 5,000 crore. The picture is really gloomy for the carrier, said a senior government official,commenting on the state of the carrier.

The carrier has undertaken a slew of cost-cutting measures which yielded savings of around Rs 800 crore till date as against a target of Rs 2,000 crore till March 2010. In the last meeting of the GoM,the finance minister Pranab Mukherjee had expressed his unhappiness with the cost-saving measures and asked the carrier to tighten its belt. At the same meeting,Home minister Chidambaram too had come down heavily on the civil aviation ministry,questioning the balance sheet shown.

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