Air India to receive Rs 980 crore capital from govt for interest payments on NCDs

The airline was granted a Rs 1,500 crore loan from Bank of Baroda last week, for which the government stood as the guarantor

The government is expected to provide Rs 980 crore of equity capital to Air India next week to help the beleaguered airline service a portion of its outstanding debt, according to a report by The Economic Times.

A major chunk of this funding -- around Rs 550 crore -- will be used to make interest payments on nonconvertible debentures (NCDs) that are due in September.

In order to repay bank loans, Air India had issued sovereign-backed NCDs worth Rs 7,400 crore a few years ago.

Apart from the interest payments, the airline will also have to pay for spare parts on planes that are currently incapacitated due to technical problems.

Also, vendors, both domestic and international, will have to be compensated for make the grounded aircraft airworthy.

Air India's turnaround plan, which was approved by the government in 2013, includes a total cash infusion of Rs 30,231 crore, spread out over a period of nine years.

Taking into account the latest installment, the government would have all but kept its fiduciary promise.

The debt-laden airline has so far received Rs 29,730 crore from the exchequer, roughly 98 percent of the capital promised as a part of the turnaround plan.

Inter-ministerial cooperation has been key in keeping the national carrier afloat thus far.

According to media reports, the Civil Aviation Ministry had written to the Finance Ministry on August 23, asking for an emergency payment of Rs 500 crore to avoid defaulting on interest payments.

The airline was granted a Rs 1,500 crore loan from Bank of Baroda last week, for which the government stood as the guarantor. The latest cash infusion is supplementary to this bank loan.

The disbursement of this sum was delayed by a fortnight as the approval of both houses of Parliament could not be solicited in time.

The Lok Sabha had cleared the expenditure but the government could not get the upper house's nod before the end of the Monsoon Session.

Air India has already exhausted the short-term loan obtained from Bank of Baroda, according to a report by The Economic Times.

Despite raising funds from multiple sources, the airline continues to be a cash burner, reliant on its umbilical relationship with the government to sustain itself.

On the other hand, the government has set its sights on making Air India commercially viable. It is now working on a plan to get nearly Rs 30,000 crore of the airline's outstanding debt written off.

It was decided that a part of the debt would be funded by selling off segments of the airline's operational base.

The move to restore Air India to good health is part of the government's larger plan to divest stake in the national carrier.

The aid package was mooted after the government tried auctioning 76 percent stake in Air India but did not find any takers for it.

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