Debt recast: Banks ask for Air India board seats

Air India's debt restructuring has hit a hurdle as banks say they want seats on the airline's board after they agreed to convert 40 per cent of its short-term debt, or Rs 7,000 crore (Rs 70 billion), into equity.

"The consortium restructuring the debt has raised concerns over not getting any representation in the board even after converting a substantial part of the debt into equity," said a senior civil aviation ministry official, who did not want to be identified.

"They have raised this issue with the Reserve Bank of India after the finance ministry denied them any board-level representation."

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Air India is the second Indian carrier to get a large bailout this year.

In early 2011, 15 banks restructured a Rs 7,000 crore debt for Vijay Mallya-promoted Kingfisher Airlines.

In the Air India debt recast, most of the 26 banks are state-owned.

They include State Bank of India, the biggest lender to the airline. Other names include Punjab National Bank and Bank of India.

Protection of interest

The official said the finance ministry said the consortium will not get any representation on the board even after converting debt into equity.

"The banks feel without any representation on the board of the airline they will not be able to ensure protection of their interest," the official added.

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According to the restructuring plan approved by RBI, the banks will restructure Rs 18,000 crore (Rs 180 billion) of the Rs 24,000 crore (Rs 240 billion) short-term debt on Air India's books.

Of this amount, banks will convert Rs 11,000 crore (Rs 110 billion) to long-term debt with a repayment of 10 to 15 years. 

They will convert the remainder, around Rs 7,000 crore (Rs 70 billion), into Compulsorily Convertible Preference Shares.

AI has Rs 43,000 crore (Rs 430 billion) of debt on its books -- Rs 20,000 crore (Rs 200 billion) aircraft loans, and Rs 24,000 crore working capital loans or short-term debt.

The aircraft loans have a long repayment period, and are less of a cause of worry.

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Revival plan

The debt restructuring is part of a bigger revival plan for the airline. The plan is being reviewed by a group of ministers headed by Finance Minister Pranab Mukherjee.

The GoM suggested equity infusion of Rs 23,000 crore (Rs 230 billion) in the airline till 2021.

But it referred the decision on equity infusion of Rs 6,600 crore (Rs 66 billion) this year and deliveries of Boeing 787 Dreamliners to the Cabinet.

Of Rs 6,600 crore, about Rs 1,200 crore (Rs 12 billion) has been infused.

The government has also put in Rs 3,200 crore (Rs 32 billion) as equity in Air India in the past two years, increasing the airline's equity base to Rs 3,345 crore (Rs 33.45 billion).

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The government carrier, with accumulated losses of Rs 20,000 crore (Rs 200 billion) since 2007, has other financial pains as well. 

It has an overdue pegged at over Rs 5,000 crore (Rs 50 billion) -- it owes Rs 2,800 crore (Rs 28 billion) to oil marketing companies, Rs 800 crore (Rs 8 billion) to airport operators and Rs 400 crore (Rs 4 billion) to other vendors.

In the Kingfisher Airlines debt recast, banks included State Bank of India, ICICI Bank, and Bank of Baroda.

Banks converted about 30 per cent of the total debt into capital and converted a loan of Rs 735 crore (Rs 7.35 billion) from parent company UB Holdings to the airline into equity.