Air India - Financial Crisis and Restructuring

Financial Crisis and Restructuring

Around 2006–2007, the airlines began showing signs of financial distress. The combined losses for Air India and Indian Airlines in 2006–07 were 770 crore (US$140.14 million). After the merger of the airlines, this went up to 7,200 crore (US$1.31 billion) by March 2009. This was followed by restructuring plans which are still in progress. In July 2009, SBI Capital Markets was appointed to prepare a road map for the recovery of the airline. The carrier sold three Airbus A300 and one Boeing 747–300M in March 2009 for $18.75 million to survive the financial crunch. As of March 2011, Air India has accumulated a debt of 42,570 crore (US$7.75 billion) and an operating loss of 22,000 crore (US$4 billion), and is seeking 42,920 crore (US$7.81 billion) crore from the government. For 3 months (June–August 2011), the carrier missed salary payments and interest payments and Moody’s Investor Service warned that missing payments by Air India to creditors, such as the State Bank of India, will negatively impact the credit ratings of those banks. A report by the Comptroller and Auditor General (CAG) blamed the decision to buy 111 new planes as one of the major causes of the debt troubles in Air India; in addition it blamed on the ill timed merger with Indian Airlines as well,. Due to high fuel and loan costs, Indian government pumped ₹32 billion into Air India since April 2009 and in March 2012 government bailed out Air India Ltd. with a ₹67.5 billion ($1.4 billion) which the amount almost double of the federal government has spent on new hospitals over the three years. As of May 2012 the carrier invited offers from banks to raise up $ 800 million via external commercial borrowing and bridge financing.