Air India in worst debt trap

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New Delhi: Air India has landed itself in the worst debt trap, where the airline is spending all its earnings in repayment of interest on aircraft loans, working capital, aircraft capital and fuel expenses.

It has had to take more loans, at higher interest rate, to meet the salaries of its 32,000 employees and other expenses.

"Air India has been incurring a loss of Rs 26 crore per day and has landed itself in debt trap from where it is not possible to come out until government comes to our rescue," a senior Air India official said.

The national carrier`s earning is Rs 36 crore per day, of which Rs 22 crore comes from domestic sector and Rs 14 crore from international.

"But we are spending Rs 62 crore every day," he said, adding the airline is suffering heavy losses ever since the government gave the purchase order of 111 aircraft.

"Interestingly, after payments for fuel, aircraft loan and interest repayments, the national carrier is left with no cash to meet the salaries of its employees, pay interest on working capital, aircraft spares and other operational cost," the official, who requested anonymity, said.

"We have to take fresh loans from banks at the rate of about 14 per cent to pay the salaries and meet other expenses.

We have been facing this situation since June last year," he said.

The national carrier has an outstanding unsecured short term working capital loan of Rs 20,763 crore and an annual interest burden of Rs 2,400 crore, at the rate of 12 to 14 per cent, which is quite high, he said.

Apart from this, the cash-strapped carrier also has a payment overdue of Rs 3,320 crore to oil companies and other vendors.

"Due to poor debt-equity ratio, no bank is ready to give us loan at lower rates, around nine per cent, which is available to other airlines," the official said.

He said in February 2010, the Group of Ministers had said that Air India would be given a `Letter of Comfort` to enable the airline avail loans at lower rates.

"But it seems that nobody is really caring for the survival of this airline and there is no progress on this front since the past year.

"Now, Civil Aviation Minister Vayalar Ravi has promised that he would get the letter from the Finance Minister but it could be done only by June," the official said, adding once "we get this `Letter of Comfort`, we would be able to save Rs 780 crore per year."

The airline daily spends Rs five crore and Rs three crore respectively as payment of fuel bills and expenses at foreign stations.

It makes a payment of Rs five crore for repayments of principal and Rs three crore per day for interest on loans taken for acquisition of aircraft.

With the jet fuel rates high in India, it has to spend Rs 18 crore as fuel expenses and Rs six crore as interest on working capital. After making these payments, the national carrier is left with only Rs two crore, the official said.

For meeting salary expenses of Rs nine crore and other operational expenses of Rs 12 crore, it has to borrow at higher rates, he added.

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