Air India still weak despite US$4.5b bailout
It pays more than the average rate on a US$300m 5-year loan in August
Mumbai
A US$4.5 billion taxpayer-funded bailout in 2012 and the delivery of Boeing Co Dreamliners haven't helped Air India Ltd elevate its third-place national ranking. Its bankers are showing they aren't impressed.
The national airline paid 180 basis points more than the London interbank offered rate on a US$300 million five-year loan in August. That's more than double the 70 basis points on a three-year facility for government-backed Rural Electrification Corp this month. It also exceeds the 96 basis points Indian companies pay on average for such loans, the lowest since 2007.
"That basically demonstrates that lenders still do not have confidence in Air India despite a government guarantee," said Kapil Kaul, South Asia chief executive officer for Sydney-based CAPA Centre for Aviation.
The airline faces competition from private budget carriers such as market leader IndiGo, which are expanding quickly to increase their share among the nation's burgeoning middle class. Air India is putting the loan proceeds towards ongoing payments on its 2005 order of 27 Dreamliners.
"Given its weak financial position, Air India's future borrowing will continue to depend on government support," said Mehul Sukkawala, Standard & Poor's Singapore-based lead analyst for corporates in South Asia. "There is concern among lenders and investors about the airline's profitability and cash flows and therefore its high leverage."
GP Rao, a spokesman at Air India, didn't immediately respond to e-mail seeking comments.
Air India's share in the local market has shrunk to about 16 per cent from 35 per cent a decade back. The company has been unprofitable since its 2007 merger with state-owned domestic operator Indian Airlines Ltd. Air India probably lost US$900 million to US$920 million for the financial year that ended March 2015, according to estimates by CAPA Centre for Aviation, after losing about US$810 million for the previous year.
Air India and IndiGo are facing fresh competition after the Indian ventures of AirAsia and Singapore Airlines started operations, jumping into a market where profit has proven elusive. Jet Airways India Ltd and SpiceJet Ltd have posted annual losses, while Kingfisher Airlines Ltd, saddled with US$1.4 billion in debt, has been grounded since 2012.
"Air India at this stage should consider its options including restructuring its debt that continues to live on its books," according to Mark D Martin, founder and chief executive officer of the Dubai-based Martin Consulting.
The airline should amortise the liabilities "for an extended period of time so as to ease the company's right side of the balance sheet", said Mr Martin.
"Air India's viability remains a challenge and unless they are able to turn around, the airline will be critically dependent on government support," said Ananda Bhoumik, a Mumbai-based managing director and chief analytical officer at Fitch Ratings Ltd's local affiliate India Ratings & Research Pvt. Bloomberg
