NEW DELHI : Air India Ltd lenders should receive major relief as Air India Assets Holding Ltd (AIAHL) is expected to reimburse ??22,000 crore of its ??29,464 crore of its working capital debt next month, a move that will also significantly reduce the national carrier’s interest obligations, said two people with first-hand knowledge of the matter.

AIAHL, a special purpose vehicle (SPV) created to store Air India’s debt, will raise the money through a government-guaranteed bond issue, one of the above-mentioned people said, under on condition of anonymity.

The proceeds from the bond will be used to pay off the working capital debt stored in the SPV, the person said.

The issuance of rupee-denominated bonds and the subsequent repayment of working capital debt will almost halve Air India’s interest expense by ??4,500 to 5,000 crore per year at approximately ??2,700 crore a year, said the other person, who also didn’t want to be named.

Air India’s lenders include public banks such as Allahabad Bank, Andhra Bank, State Bank of India, United Bank of India, UCO Bank, Union Bank of India and Punjab National Bank, and private lenders such as Deutsche Bank, Standard Chartered and JP Morgan.

Air India’s net debt fell from around ??55,000 crore at the end of March 2018 to ??58,351.93 crore at the end of March 2019. Aviation debt is the difference between the total debt and the working capital debt of ??29,464 crores.

Air India is expected to have suffered a loss of ??7,365 crore during the fiscal year ended March 31, 2019, compared to the ??5,337 crore loss it reported the previous year, according to provisional figures released by the government in June.

The losses can be attributed to the weakness of the rupee, rising fuel prices and the high interest rate burden on its debt, said the second person mentioned above.

“Air India will become more efficient if its net debt is cut by about half, as that will leave more money in the airline’s hands to spend,” the person said.

Air India, which has around 128 aircraft, began operations on 13 new domestic routes and six international routes in the past fiscal year.

The cash-strapped airline, which survives on government bailout, received an equity injection of ??30,520.21 crore from the government as part of the 2012 recovery plan (TAP).

The AIAHL was established by the government in February 2019 to park accumulated non-asset-backed working capital loans with four subsidiaries of the airline, Air India Air Transport Services Ltd (AIATSL), Airline Allied Services Ltd (AASL ), Air India Engineering Services Ltd. (AIESL) and Hotel Corporation of India Ltd (HCI), non-core assets, paintings and artifacts and other non-operating assets of Air India Ltd.

To date, only one subsidiary of Air India, namely AIATSL, has been transferred to AIAHL, in accordance with the share purchase agreement between Air India Ltd and AIAHL subject to conditions which include the approval of lenders. .

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