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Tata-owned Air India's Bold Move for a Rs 3,000-Crore Loan

Turbulence to Triumph, Air India's Financial Boost to Fuel Expansion

10 August 2023

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Kunal Tyagi

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  • Air India, led by Tata Group, is in discussions with commercial banks for a Rs 3,000-crore loan, aimed at securing down payments for sale-and-leaseback agreements to bolster cash flow and operations.

  • Multiple lenders, including State Bank of India, are showing interest in supporting the loan, supplementing Tata Group's existing investment in the airline.

  • Following its acquisition by Tata Sons, Air India is strategically merging with Vistara and merging Air India Express with Air Asia India, forming a unified low-cost carrier.

Air India, under the stewardship of Tata Group, has embarked on a strategic path to bolster its operations and solidify its presence in the aviation industry. In recent developments, the carrier has initiated talks with multiple commercial banks to secure a substantial Rs 3,000-crore loan. This financial injection is intended to facilitate down payments to lessors as part of the innovative sale-and-leaseback (SLB) agreements, thereby enhancing the airline's cash flow and operational capabilities.


Sources close to the matter reveal that Air India has actively engaged with various lenders to negotiate the terms of the loan. Notably, executives from State Bank of India have confirmed the positive reception of this proposal, indicating a collaborative approach among several financial institutions to support the endeavor. This financial aid will complement the considerable investment already injected by the Tata Group into the company.


The overarching strategy of Air India is closely tied to its recent acquisition by Tata Sons, which secured a complete stake in the airline through its subsidiary, Talace Private Limited, last year. As part of this comprehensive transformation, Air India and Vistara are set to merge into a singular entity, with Singapore Airlines also entering the fold with a 25 percent stake. Furthermore, the consolidation extends to encompass the merger of Air India Express and Air Asia India, paving the way for a unified low-cost carrier airline.


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Strategically, Air India's move to order 470 aircraft earlier this year has positioned it on the trajectory of growth and modernization. This historic order, valued at approximately $70 billion, comprises 250 aircraft from Airbus and 220 from Boeing. The inclusion of wide-body aircraft, such as the A350, B777, and B787, reflects the airline's ambitions to tackle long-haul routes, such as India-North America, while enhancing its operational efficiency.


Amid these transformative changes, Air India has faced financial challenges, accumulating losses and grappling with the costs associated with aging planes and engines. The projected Rs 14,000-crore accumulated losses and impairment costs underscore the airline's determination to address these hurdles while capitalizing on the opportunities brought forth by its new ownership structure.


With its stellar credit rating and the backing of Tata Sons, Air India is poised to tap into favorable loan facilities, as reaffirmed by rating agency Crisil. The aviation industry's recovery from the pandemic, coupled with a potential moderation in aviation turbine fuel prices, sets the stage for improved operating performance in the upcoming fiscal year.


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