A report has claimed Air-India is fast slipping into a debt trap where its repayment commitments are so high that the airline could be forced to resort to further loans.
'Air India's net worth will turn negative by June 1999 if adequate funds are not infused immediately and the slide-down in yields and revenues is not checked,' says a Kelkar committee report. The government established the Committee to prepare a turnaround package for the airline.
The airline's short-term borrowings had reached Rs11.94 billion (US$281 million) by March 1998 and are expected to be Rs17.2 billion by March next year. The outflow from interest payments is estimated at Rs3.4 billion during 1998-9. The Committee suggests a state-sponsored bailout: 'The government would have to make a subordinated loan of Rs5 billion in the first year, and Rs9 billion in the second. Air-India should raise Rs10 billion by selling its subsidiary, Hotel Corporation of India.'
The airline will have to initiate a clear programme to raise its yields and significantly reduce its wage outflow, the report says, noting that the airline has one of the highest aircraft-to-employee ratios in the world with about 650 employees.
Air-India has prepared a plan to replace some of its more expensive loans with cheaper overseas and domestic loans. The strategy: private placements of bonds with a five-year life stream to raise Rs1 billion, securing receivables in the US with a seven-year term to raise $8 billion, and replacing high-interest loans with low-outflow wrap-around loans.
Under the securitisation plan, the airline will float bonds worth $200 million. The interest and principal repayment of these bonds will be secured from the revenues of US operations, an Air-India official says.
The cost-saving measures initiated by Air-India management after the southeast Asian currency crisis began, however, have met with little success. The airline's efforts to persuade its employees to take cuts in their productivity-linked incentives, which form a significant portion of their wages, have not been well received. The engineers have not responded favourably and others have shown little support for a freeze or moratorium on the payments until Air-India regains some of its financial strength.
During the first quarter of fiscal 1998-9, Air-India incurred an estimated loss of Rs850 million, against a Rs370 million loss in the previous fiscal year's first quarter.
According to the budget for 1998-9, the losses are projected to be Rs3.4 billion compared to losses of Rs2.9 billion in 1997-8, Rs3 billion in 1996-7 and Rs2.7 billion in 1995-6. However Air-India would have recorded an even higher loss during the last fiscal year had it not sold its two old Boeing 747-200s and two spare engines, for around Rs1.08 billion
Source: Airline Business
