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Air India asks lenders to cut interest rates on loans
Saddled with total debt of around Rs 46,000 crore, Air India has written to 16 of its lenders to cut interest rate on its loans by up to 2 percentage points, in line with the reduction in rates in the market. The airline is also in talks with state-owned infrastructure company NBCC and Ministry of External Affairs to sell around 98 of its properties spread across India and some overseas. While reduction in interest rates reduce its costs, monetisation of assets would help pare it short-term borrowings.
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If bankers accept its request, it would bring down its interest cost to around 8.5 per cent from over 10 per cent at present, a senior Air India official said. “This would result in annual savings in interest costs of about Rs 200 crore on loans of around Rs 15,000 crore. We have written to around 16-17 banks and to the consortium leader State Bank of India. The banks have so far not responded and they usually take their time,” the official said.
The airline has asked the banks to align the rates on loans to the marginal cost of funds based lending rate (MCLR) plus a reasonable spread not exceeding 50 basis points. This is expected to lower interest rate which is presently linked to the base rate. Base rate, which is based on average cost of funds, for banks is typically higher than the MCLR. SBI’s one-year MCLR for instance is 8 per cent, compared with a base rate is of 9.10 per cent.
The airline earned an operating profit of Rs 105 crore in 2015-16. “We expect to post similar level of operating profit in 2016-17,” the official said. Reduction in prices of Aviation Turbine Fuel (ATF) helped the airline boosts its operating performance as total costs incurred on ATF reduced to Rs 5,845 crore in 2015-16, as compared to Rs 8,449 crore in 2014-15. But the burden of servicing the debt, which totalled Rs 46,000 crore at the end of March 2016, led to the airline incurring net losses. Its net loss narrowed to Rs 3,836 crore in 2015-16 as compared to Rs 5,859 crore in 2014-15. The airline’s total revenue was Rs 20,524 crore in 2015-16, while total expenses were Rs 24,361 crore in 2015-16.
Despite high losses accumulated over the years, the carrier has survived under a financial restructuring and turnaround plan funded by the Centre. Under the plan, Air India will get equity infusion of Rs 42,182 crore over the period from 2011-12 to 2031-32, which is linked to a number of performance parameters. Till 2015-16, the Centre had infused equity worth Rs 22,280 crore.
To raise resources through monetisation, the carrier has submitted a list of 38 properties to NBCC for direct sale. The airline is also in talks with Ministry of External Affairs to sell properties in Hong Kong and state capitals of India. Air India has forwarded a list of 60 properties that it wants to sell to MEA.
Against the annual assets sale target of Rs 500 crore, Air India has so far been able to sell only four flats at Sterling Apartments, Mumbai and land at Coimbatore at value of Rs 88 crore and Rs 19.81 crore respectively. It expects to get another Rs 91 crore annually in rental income through leasing of office space at the Air India building in Nariman Point in Mumbai. Kevin Faulk Authentic Jersey
