Relief for Airlines in the air

Cash-strapped Indian carriers are finally finding money to finance expansion plans or merely fund operations. State-owned Air India is set to receive a $1 billion (Rs 49,000 crore) loan and Naresh Goyal-promoted Jet Airways is close to striking a deal for a Rs 500-crore loan from Indian Overseas Bank.

Flag carrier Air India is raising funds to buy 23 new aircraft and is in discussions with a consortium of UK-based Barclays and promotional bank for German and European countries KFW, and with Deutsche Bank. The deal is expected to be finalised in a week.

The loan, however, will have a sovereign guarantee, which is expected to help the airline access finer rates. Dollar denominated loans to companies are currently pegged at the London-Interbank offered rate plus 1,000 basis points (10 percentage points). With a government guarantee, the rate could drop to Libor plus 450 or 500 basis points.

Air India is buying 23 Airbus A319s/320s, for which orders have already been placed with the European aircraft manufacturer. Sources in Air India confirmed the development.

Apart from the loan from IOB, Jet is also believed to have secured another funding of Rs 1,000 crore from the Abu Dhabi government investment firm Mubadala Development Company. Jet could not be reached for confirmation. IOB officials declined to comment on the deal.

Though the interest rates and tenure at which these loans have been negotiated is not immediately known, it is believed that IOB has offered Jet a competitive deal.

With a slowdown in passenger traffic growth and, till recently, rising jet fuel prices, airlines have been reeling under losses. Air India is projected to make a loss of Rs 2,500 crore and the airline has sought a bail-out package which includes Rs 2,350 crore in equity infusion and a soft loan from the government.

Jet Airways, on the other hand, needs funds for working capital and is struggling with dues to oil companies and airport operators. The airline declared a loss of Rs 384 crore for the second quarter of this fiscal. Last year, it deferred a rights issue.

A few months ago, Delhi-based value carrier SpiceJet received $80 million from US investor Wilbur Ross and another $20 million from a combination of Ishtimar and Goldman Sachs in both equity and convertible bonds.

Kingfisher Airlines is also looking for working capital funding between Rs 1,000 crore and Rs 1,500 crore.