Expansion by Indian carriers to help aviation sector overcome cash ban impact

Expansion by Indian carriers to help aviation sector overcome cash ban impact

National carrier Air India is set to reduce its aircraft loans after finance minister Arun Jaitley allocated Rs 1,800 crore toward retiring debt that has been raised to fund fleet expansion of the debt-laden airline.

New Delhi-based Air India, which is battling both full-service and low-cost private carriers for market share at home and the country’s immediate neighbourhood, has debt of about Rs 45,000 crore on its balance sheet: of the loans, Rs 14,000 crore are aircraft loans, while the rest are working capital funds that include non-convertible debentures of Rs 7,500 crore. Founded in 1932 and a near-monopoly until the 1990s, Air India has lost market share to more nimblefooted private carriers in one of the world’s fastest-expanding aviation markets.

A reduction in fuel prices and efforts to pare down costs helped Air India turn in a better financial performance, although the carrier still accounts for the biggest quantum of industry losses. In FY16, the airline posted a net loss of Rs 3,837 crore as compared to .Rs 5,859 crore in the previous year. While the allocation for the 2018 fiscal is about Rs 1,000 crore lower than Air India’s demand of .Rs 2,800 crore, the national carrier expects the government will release more funds later.

“Of the Rs 2,800 crore we had sought, Rs 1,800 crore is for repaying aircraft loans and the rest was for compensation on account of the rupee’s movement against the dollar, something that has increased the cost of servicing our aircraft loans,” a senior Air India executive, who did not want to be identified, told ET. He said the infusion will be used to repay aircraft loans.

Against the US dollar, the rupee has fallen significantly over the past five years as periods of sputtering economic growth and global quest for safe stores of value have strengthened the US currency in which most global loans are denominated. In the current financial year, the government had initially allocated Rs 1,713 crore, while the carrier sought.Rs 3,300 crore. In the supplementary grants, the government allotted a further .Rs 752 crore, more making a total allocation of Rs 2,465 crore.

The Rs 46,000-crore debt continues to be a drag on the carrier, and Air India chairman Ashwani Lohani had recently told ET that the government’s financial support was needed to prevent a further pile-up of loans.

 

News Source: economictimes.indiatimes.com

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