In a big boost to its precarious financial position, Air India's Financial Restructuring Plan (FRP) has been approved by a consortium of banks, which may enable the ailing carrier save several hundred crore in the first year itself.
As part of the FRP, Air India signed four agreements with the SBI-led consortium late Friday evening. These were Master Restructuring Agreement, Working Capital Facility Agreement, Appointment of Facility Agent Agreement and Appointment of Trustee Agreement, airline officials said on Saturday.
"The Cabinet approval for infusion of funds is still awaited and is expected to be received some time next week," the officials said.
Implementation of the FRP would begin after the Union Cabinet approves additional equity infusion into the airline, they said. Officials of at least 19 banks were present at the signing ceremony.
One of the major highlights of the agreements include conversion of about Rs 10,500 crore of the airline's working capital in to long-term loan, carrying an annual interest of 11 per cent.
"The first year interest would accumulate in a funded interest term plan," they said, adding these would lead to substantial savings of about Rs 1,000 crore in 2012-13 itself.
In addition, non-convertible debentures (NCDs), guaranteed by the government, worth Rs 7,400 crore would be issued and subscribed by the investors, the officials said, adding proceeds from the NCDs would be used to repay the lenders.
Apart from this, part of the working capital of about Rs 3,500 crore would be restructured as cash credit arrangement.
Under the FRP, Air India has proposed that the government should infuse equity of about Rs 30,231 crore in the 2012-21 financial period.
It also includes conversion of short-term working capital loan of Rs 7,000 crore into cumulative preferential shares or NCDs and more time to repay a debt amount of approximately Rs 14,000 crore.
The government has so far infused equity of Rs 800 crore in 2009-10, Rs 1,200 crore in 2010-11 and another Rs 1,200 crore in 2011-12.
The debt-ridden carrier has outstanding loans and dues worth Rs 67,520 crore, of which Rs 21,200 crore is working capital loan, Rs 22,000 crore long-term loan on fleet acquisition, Rs 4,600 crore vendor dues besides an accumulated loss of Rs 20,320 crore.
In December last year, the airline had total of Rs 21,714.38 crore as short-term working capital loans. It pays an interest of over Rs 2,600 crore annually.
The financial restructuring exercise began in May 2010 with SBI-Caps being appointed Financial Advisors to the transaction.
The FRP is based on the airline's overall Turnaround Plan aimed at providing immediate relief to Air India through provisions such as Funded Interest Term Plan, repayment moratorium of Long Term Loans and upfront equity infusion by the government.
The plan, formulated on the basis of projected cash flows of the company, provides a roadmap to improve the airline's operational efficiency and put it on the road to profitability, the officials said.