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SBI mulling Air India request to reduce interest rate

In order to provide some relief to the debt-laden Air India, the country's largest public sector bank, State Bank of…

SBI mulling Air India request to reduce interest rate

(Photo: AFP)

In order to provide some relief to the debt-laden Air India, the country's largest public sector bank, State Bank of India (SBI) and its other consortium lenders are considering the request of the airline's chief to cut the interest rate on its borrowings. Ashwani Lohani, chairman and managing director of Air India, in a letter to SBI requested the lender to link the interest rate to marginal cost of fund-based lending rate (MCLR) from the existing base rate. "The reduction of interest rate to 8.5 per cent from 10.05 per cent will provide the much needed relief. The alignment of interest rates would accrue a savings in interest of around Rs.200 crore annually on the total loan base of around Rs.15,000 crores," it said. 

 The government is making all attempts to turn around the airline's fortunes. Officials in the finance ministry also said it has also sought support from the government in terms of sovereign guarantee to convert its long-term working capital of Rs.10,500 crore into non-convertible debentures (NCDs) with 10-15 year duration.

As part of the airline's revival plans, it is trying to monetise its assets. Officials said, "A list of 38 properties has been forwarded to NBCC. Out of the 38, NBCC has identified 21 properties whose valuations are completed and Air India may sell directly. However, the e-auction process will start after getting the fresh valuation done." The official added that a second list of 28 properties have been forwarded to NBCC for their scrutiny and advice on monetisation. 

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Four years since its revival plan was put in place, the airline has significantly narrowed its losses and improved its operational parameters. It's EBIDTA (earnings before interest deduction and tax amortisation) stands positive at Rs.2,413.29 crore in 2015-16 as against the negative EBIDTA of Rs.2236.95 crore in 2011-12. In order to resuscitate it, the government cleared a Rs 30,231 crore bailout package. 

 The airline has claimed to have made an operating profit of Rs.105 crore in FY16 though it has been disputed by government auditor CAG, which in its latest report said the airline actually incurred an operating loss of Rs.321.4 crore during this fiscal.

Buoyed by the double digit-growth in the domestic market, the airline is planning to scale up its fleet size. It has decided to induct 104 aircraft by 2020.

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