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Air India (IA, Bombay International) put out a tender for short-term loans in the amount of Rs 61.5 billion (US $ 826 million) to be spent on refinancing aircraft, he said in a document call for tenders for national lenders on November 11.
The indebted flag bearer explained that the proceeds from the government-guaranteed loan would refinance previously foreign currency bridging loans to purchase six B787-8s and a B777-300 (ER). He offered B787s and B777s as collateral for the loan, which will be repaid after one year, and set a deadline for offers of November 20.
Air India’s current fleet of 124 aircraft consists of twenty-seven B787-8s, of which at least six belong to it, and thirteen B777-300 (ER), all of which are owned on advanced ch-aviation fleets shows the module. It also operates three properties B777-200 (LR)s.
The plan is to increase the total amount in seven installments, which would include three installments of INR 7.9 billion (USD 106.5 million) each, three of INR 9.25 billion (USD 124.5 million) each and one of 10 INR. 05 billion (135 million USD), according to the tender document.
The interest rate payable by the airline will be linked to the marginal cost of funds (MCLR) and government securities (G-SEC) rates “with a reasonable spread as a margin”. As a general rule, banks cannot lend at a rate lower than the MCLR.
This new fundraising effort was announced two weeks after the ongoing coronavirus pandemic forced the Indian government to extend the deadline for submitting bids to purchase a 100% stake in Air India to December 14, in a ninth correction of the original memorandum inviting Expressions of Interest (EOI) into the sale.
The government rejected the carrier’s request for an equity injection, agreeing instead to act as sovereign guarantor of the airline’s debts. As previously reported, in its ninth ‘corrigendum’ it also reworked the terms of sale for Air India, which will now be offered based on its enterprise value (EV), and bidders can indicate the level of debt they are comfortable with.
The government has decided that whatever EV a bidder offers will have to provide the government with at least 15% of that value in cash.
According to the newspaper Hindu Business Line, several potential bidders asked about clause 6 of the memorandum before the November 12 deadline to do so through transaction advisers Ernst & Young (EY). Clause 6 concerns the proposed debt reallocation and the new electric vehicle based offer.
One party recommended that the focus be on the cash flow needed by the struggling business to get through this difficult time and not on taking money out of the business.
“We therefore believe that the 85% / 15% condition is wrong and contrary to the government’s objective […] The entirety of the electric vehicle should be left with the company in the form of assumed debt, ”said the potential bidder.
Other potential bidders have said the potential buyer would have to invest large sums in modernizing the fleet, bringing currently inactive planes into service, paying lessors and introducing voluntary employee retirement plans.
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