Air India seeks government nod to recast Rs 10,000 crore debt

Air India plans to expand its US network, including new flights to Newark and Washington and reduce interest burden through refinancing of existing Rs 10,000 crore term loans with government-guarantee backed debentures.

Air India is expected to cut down losses by 40% to Rs 3,529 crore in FY16 from Rs 5,859 crore in the previous year, aided by reduction in jet fuel cost. However, the airline is set to miss its revenue growth target and has been unable to significantly lower its interest and maintenance expenses resulting in the high loss figure.

Passenger revenue for FY16 is projected to be flat around Rs 16,000 crore due to decline in fares, lower yields and lack of projected capacity addition. The airline has been able to cut down its fuel bill which is estimated to be around Rs 6,000 crore a reduction of around 30% over FY15.

The reduction in fuel bill will result in Air India posting an earnings before interest tax depreciation and rentals (EBIDTAR) of around Rs 4,500 crore for the current fiscal up from Rs 1,450 crore last year. However the gains have been negated as the airline interest and maintenance expense remains high. Air India's interest bill for FY16 is estimated to be around Rs 3,700 crore compared to around Rs 4,000 crore in the previous year.

Air India, which has received over Rs 22,000 crore government funding, has been promised Rs 1,700 crore infusion in FY17 as against the demand of Rs 4,300 crore. Civil aviation ministry has however clarified the airline will be given additional funding upon requirement.

“We will complete sale and lease back of nine of our 21 Boeing 787s by March-end and this will help us retire $900 million debt attached to the aircraft. Also, we are looking

to refinance existing term loans of about Rs 10,000 crore with government-guarantee backed non-convertible debentures. We have sought approval from the government for the issue of the debentures as this will lower interest cost on this debt by around 2% to around 8%,” said an Air India executive.

Also, on agenda, is aircraft acquisition both for replacing old planes and addition. Air India has a fleet of 107 planes, which includes a mix of narrow body A320s and wide body Boeing 777,747 and 787.

The airline will lease 14 Airbus A320neo beginning first quarter of calendar year 2017 largely to replace nearly two decade old 14 A320s which it flies it present.

Additionally the airline is looking upto 10 A320s for expansion.

Between November 2016 and 2018, it will induct 6 Boeing 787s. “We are launching flights between Delhi-Vienna, Ahmedabad-Newark, Delhi-Washington and additional frequencies on domestic routes such as Delhi-Pune, Mumbai-Indore,” he said.

Over the last few months Air India has added flights between Ahmedabad-London, Delhi-San Francisco on international routes and new flights to Kozhikode, Bhubaneshwar and Surat.

Air India's rivals have been adding capacity through aircraft induction and better fleet utilisation while the carrier's domestic network fleet of A320 aircraft has been stagnant. In other metrics like aircraft availability, load factor and on time performance Air India has fared poorly in comparison to its peers.

The airline’s executive, however, said performance was improving in all parameters. 'Our on-time performance and load factor has improved. Occupancy in business class has risen from about 40-42% to about 52%,'' he added. Fleet utilisation on both narrow body Airbus A320s and wide body Boeing 777s has increased with introduction of new route like Delhi-San Francisco. Overall availability of aircraft for operations too has been enhanced and there are fewer grounded planes due to availability of spares.