AI warns govt of loan default consequences

Air India has warned the Prime Minister's Office and the finance ministry that the country's sovereign rating may be hit as the airline is on the brink of defaulting on interest payments on foreign loans of Rs 15,000 crore (Rs 150 billion).

The loans are backed by a government guarantee.

The state-owned airline had taken these loans to part-fund its Rs 22,000-crore (Rs 220-billion) aircraft acquisition programme.

The banks involved include Citibank, Standard Chartered, Deutsche Bank, J P Morgan and KFW.

In a communication to PMO and the finance ministry sent a few days ago, the Air India management pegged the overdue amount at Rs 4,489 crore (Rs 44.89 billion), including payments to oil companies, airport operators, vendors and employees, besides interest on working capital loans.

It said because of the critical liquidity position on account of banks' refusal to lend (because of non-payment of interest on working capital loans), the vendors' dues of over 120 days were pending.

The vendors were threatening to put the airlines on 'credit hold', which would hit operations, it said.

Such an interruption, it said, would lead to a fall in revenue, hitting even payments for loans taken to buy aircraft.

The situation, it said, had been worsened by the fact that the government had not paid dues of Rs 1,173 crore (Rs 11.73 billion)

on account of VVIP operations and flights to evacuate Indians from Libya, Egypt and Japan.

Air India said its monthly collection was Rs 1,100 crore (Rs 11 billion), whereas the expenditure was Rs 1,700 crore (Rs 17 billion).

Out of the operational revenue of Rs 22 crore (Rs 220 million) a day, Rs 14.50 crore (Rs 145 million) goes to oil companies, leaving only Rs 7.5 crore (Rs 75 million) for servicing loans.

At a review meeting a few days ago, the Air India management was given steep revenue collection targets, without which it would be in big trouble in the coming months.

It was told to increase daily revenue from Rs 38 crore (Rs 380 million) to Rs 65 crore or Rs 650 million (Rs 1,950 crore or Rs 19.5 billion a month) and ensure 40 per cent higher passenger traffic receipts (from Rs 30 crore or Rs 300 million to Rs 42 crore or Rs 420 million a day).

It was also told to double cargo revenue to Rs 5 crore (Rs 50 million) a day. Alliance Air, a subsidiary, was asked to earn Rs 1 crore (Rs 10 million) extra every day.

The management said meeting these targets would help the airline bridge the Rs 600-crore (Rs 6-billion) monthly gap between expenditure and revenue, without which it would not be able to make interest payments.