Air India Said to Win Accord on 13 Billion-Rupee Interest Cuts

Air India Ltd. has won agreement from lenders on a debt-revamp plan that will reduce its interest payments by 13 billion rupees ($261 million) a year, according to three people familiar with the talks.

The state-owned carrier’s interest costs will fall to about 21 billion rupees a year from 34 billion rupees, said the people, who declined to be identified before a ministerial panel formally ratifies the deal at a meeting set for Oct. 27. The plan includes converting about 180 billion rupees of short-term loans into longer-term debt and preferred shares, they said.

The airline, unprofitable for four years, will also seek 65 billion rupees from the government before the end of March, said one of the people, an Air India executive, as it struggles with debts built up from ordering 111 planes. Interest payments on borrowings that totaled 442 billion rupees as of March 31 account for about 30 percent of the airline’s annual costs.

“Any restructuring that can reduce the interest burden faced by carriers is obviously a positive step,” said Binit Somaia, a Sydney-based director at industry adviser CAPA Centre for Aviation. “But ultimately there needs to be a viable business model.”

Air India plans to convert about 110 billion rupees of short-terms loans into 15-year debt at an interest rate of 11.5 percent per year, the people said. About 70 billion rupees of loans will be swapped for cumulative preferred shares, redeemable in 15 years and carrying an 8.5 percent interest rate, they said.

K. Swaminathan, a spokesman for Air India, declined to comment. M.D. Mallya, chairman of state-run Bank of Baroda (BOB), Air India’s biggest short-term lender, didn’t respond to two calls to his mobile phone.

The carrier’s other lenders include Bank of India (BOI), Central Bank of India (CBOI), Indian Overseas Bank (IOB), Punjab National Bank and State Bank of India. (SBIN)

787 Orders

The airline, due to be the second operator of Boeing Co.’s 787, is also still to decide on the delivery schedule for its 27 on-order Dreamliners, the executive said. Scrapping the orders has been ruled out because of penalty costs, the official said.

The carrier earlier this month raised 55 billion rupees selling bonds to refinance debts tied to plane purchases. Some of its borrowings are also backed by aircraft worth about 300 billion rupees, the executive said.

The government has given the carrier 32 billion rupees in bailouts since April 1, 2009 because of losses. The company, which hasn’t made a profit since merging with Indian Airlines in 2007, lost 69.9 billion rupees in the year ended March 31.

Competition from the state carrier has also contributed to losses at India’s listed airlines. Jet Airways (India) Ltd., the nation’s biggest carrier, hasn’t been profitable for four years. Kingfisher Airlines Ltd. (KAIR), controlled by brewing tycoon Vijay Mallya, lost 10.3 billion rupees in the year ended March 31.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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