Sunday, December 2, 2018

Debt burden

Debt burden
Air India’s problems need a solution that will be sustainable over the long term and not an accounting gimmick

Will shuffling around Rs 29,000 crore of Air India debt into a special purpose vehicle (SPV) help in anyway? On the perpetually loss-making airline’s books, the debt liability may get pruned to Rs 1,700 crore from the prevailing Rs 4,400 crore that is forked out annually. This is at best a gimmick by the aviation ministry with no permanent solution in sight to the woes of Air India. Even if Air India’s direct outgo on interest payments gets halved, the remaining Rs 2,700 crore will have to be forked out by the SPV, Air India Asset Holding Co (AIAHL). However, with very few assets in hand and hardly any revenue streams, AIAHL is certain to find it difficult to meet the interest liabilities periodically.

Assets like ground handling services, land, buildings, paintings and artifacts may be assigned to AIAHL. But, the moot questions still remains, who will fork out the interest payments? Outright sale of ground handling services – a profit making business – may, in fact, reduce revenue inflows even if it enables Air India to meets immediate cash requirements. Even though Air India has no business to be in ground handling services, the right model could be to enlist a private partner to enlarge the capital base and later make an outright sale.

Air India’s land and buildings base is considerable. Several of these properties may have been co-owned by the Airports Authority of India (AAI) from pre-reforms days of 1991. Ideally, leasing out these immovable assets to other airlines in need of space at airports is an option that could fetch some revenues on a sustained basis. Outright sale of immovable assets like land and buildings should be the last option before Air India. However, the re-jig could only bring about temporary relief as the government is yet to find a long-term solution to the Air India mess. In sync with RSS chief Mohan Bhagawat’s recommendation, the government may like to postpone the sale of Air India, lock, stock and barrel. But then, what would have stopped government from enlisting Tatas as partners to Air India in running the core business operations of airline services?

In fact, Air India should have partnered with Tatas who could fork out about $ two billion for a partnership with the ‘maharaja'. The government dragging its feet on a partnership with the Tatas must have led to the loss of a golden opportunity to turn around the loss-making airline and also enlist a long term partner from private sector. The latest proposal to hive off half the total debt at Rs 55,000 crore may at best give the government some breathing space to make a fresh pitch to find a partner for Air India at a later date.

Source: MDFC