• Air India in talks to recast Rs 10,000 crore debt

    Air India is negotiating with lenders to convert Rs 10,000 crore of its debt into equity, a move that will substantially reduce the national carrier’s interest burden but give the banks a major say in its functioning. Air India chairman Ashwani Lohani has already met a few bank heads to discuss the matter and will meet some more in the coming days, said a senior official at the state-run airline who is involved in the talks with the 19-member consortium of lenders.

    The talks are being held under the Reserve Bank of India’s Scheme for Sustainable Structuring of Stressed Assets, or S4A, which gives struggling companies another chance at recovery.

    Under this programme, unsustainable loans — the portion of the debt that can’t be serviced through existing cash flow — can be converted into equity with the banks holding the stake. “About Rs 20,000 crore of our loans have been found to be sustainable (which can be serviced through its cash flow) and about Rs 10,000 crore is (proposed) to be converted into equity,” said the official, speaking on the condition of anonymity.

    “SBI Caps is negotiating for us with the consortium of 19 banks.” The national carrier pays Rs 4,000 crore of interest a year. “Once these loans are converted into equity, our annual interest payment outlay will reduce by Rs 1,000 crore,” he said. A lower interest outgo will boost the airline’s efforts to turn a profit. It is, in fact, set to post its first operating profit — that won’t include interest payment — since the 2007 merger of the erstwhile Indian Airlines with Air India, helped mainly by lower fuel prices than any improvement in operational parameters.

    Air India’s audited results for fiscal 2015-16 are likely to be released next month, when it is expected to report a Rs 100 crore operating profit. In his Independence Day speech last week, Prime Minister Narendra Modi said the airline has succeeded in registering an operating profit last year. . An aviation industry expert said the government is oversimplifying the problems of Air India by focussing on the financial bit and not its operational issues, which actually require direction.

    “This would mean transferring the loss of one company to another … It does not materially solve the airline’s problem because the problem lies elsewhere, which is in giving a strategic direction to the airline’s operational issues,” said Jitendra Bhargava, a former executive director at Air India. “The government did give the airline a bailout package of Rs 30,231crore but that has not been able to solve the problem.”

    he S4A scheme allows for restructuring large ticket loans where the project or company is up and running. Under this scheme, lenders are required to separate the sustainable loan, or where timely repayment is possible, from the unsustainable portion.

    The bank would convert the unsustainable debt into equity or equityrelated instruments. This would lower the debt burden of the borrower, while the bank, as a shareholder, would gain from the improved valuation a turnaround at the company would bring. ArDarius Stewart Jersey

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