Declines to be part of banks’ sector-wide loan recast; move may weigh with RBI.

Jet Airways, India’s largest passenger airline, has disassociated itself from a move to restructure the ballooning debts of the aviation industry. The debt recast initiative has been launched by Indian Banks Association (IBA), the umbrella body of bankers. IBA has approached the Reserve Bank of India (RBI) with a request to clear such a proposal.

Confirming the development, a senior Jet executive, said: “We are not looking at any restructuring of our debt and do not need it, as the majority of our loans are for aircraft purchase. These loans are guaranteed, long-term and at a lower interest rate.”

Of Jet’s Rs 14,818 crore debt, its short-term loans are Rs 3,000 crore. “A major amount of our short-term debt is working capital debt and only Rs 500 crore is in (strictly) short-term debt. We do not need any restructuring for this amount,” he said.

Jet finished the last financial year with losses of Rs 467.6 crore, but started the current financial year with a profit of Rs 3.5 crore in the first quarter.

The country’s three biggest carriers — Jet, Kingfisher Airlines and the government-run Air India (AI) — which control 65 per cent of the domestic passenger traffic, have a combined debt of Rs 63,045 crore. Of this, Rs 16,000 crore is in short-term loans.

With Jet clear it does not want to be part of a loan restructure and Air India’s financial rejig managed by the government separately, it remains to be seen if the Reserve Bank of India will agree to an industry-wide restructuring or tell banks to deal with each company separately.

Some airlines have been pushing for an industry-wide, rather than a company-wise restructuring. Banks had finalised a three-pronged strategy to restructure short-term debt of the airlines, which was to be discussed with RBI. The initiatives included a two-year moratorium on payment of short-term debt, lower interest rate and conversion of part of the debt into external commercial borrowings or cumulative convertible preference shares.

The debt of Kingfisher was Rs 7,413 crore as on December 2009 and State Bank of India’s (SBI’s) merchant banking arm is working out a restructuring plan. SBI had earlier rejected a proposal to recast Kingfisher’s Rs 2,099-crore short-term debt. For the financial year ended March 2009, the net loss of Kingfisher was Rs 1,647.2 crore and it reported a net loss of Rs 187 crore in the first quarter of the current financial year.

The national carrier, Air India, has working capital debt of Rs 18,000 crore to be restructured, with another Rs 20,000 crore of capital expenditure debt. The airline has appointed SBI Caps to prepare a restructuring plan. AI also has accumulated losses of over Rs 7,200 crore, but got equity infusion of Rs 800 crore in the last financial year from the government as part of the latter’s plan to rescue its airline. AI is to get another Rs 1,200 crore in the current financial year from the government to expand its equity capital base.

source: Business Standard

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