Air India penalised for unfair trade practice

Express news service : Chandigarh, Sun Nov 25 2012, 01:09 hrs

The State Consumer Disputes Redressal Commission has set aside an earlier judgement of the UT District Consumer Forum against Kingfisher Airlines in a case of unfair trade practice. Air India, however, has been penalised for causing mental agony and harassment to passenger after a delayed flight.

The complainant, Parminder Kwatra from Chandigarh, had booked a Kingfisher Airline flight to Bengaluru in November 2011. However, the flight was delayed by three hours and she was, instead, accommodated in an Air India flight that went via Delhi.

According to the complaint, in Delhi, she was moved to the another Air India flight to Bengaluru that was running late by two hours.

Kwatra alleged that when she reached Bengaluru, Air India officials informed he that her baggage was being transported by the next flight and she had to wait for another two hours for its arrival. She stated that despite her repeated requests to be accommodated in a lounge or a nearby hotel, the airline officials did not oblige.

In its written reply, officials at Kingfisher Airline submitted that she was informed of the flight delay much in advance and was transferred to another flight by Air India without any extra charges. Air India officials stated that all courtesies were extended to her for the duration of her wait, which were declined by her.

“One can well imagine the plight of a passenger, especially a lady, who reached Bengaluru Airport at about 9.15 pm and had to wait for her baggage which had not been brought in the same flight, on account of the acts of omission and commission of the officials of Air India,” observed the consumer commission.

The order by the commission stated that the district forum was wrong in not touching this aspect of the matter of the mental agony and harassment experienced by the complainant. Air India was, thus, directed to compensate Kwatra with Rs 10,000 and bear litigation costs of Rs 5,000.

Air India lenders give in, approve Rs 18000cr debt recast

   

Source :Press Trust Of India / Mumbai Feb 18, 2012, 00:57 IST

Thirteen-bank consortium also agrees to give Rs 2,200 crore worth fresh working capital loan

Lenders of cash-strapped Air India on Friday approved its corporate debt restructuring plan worth Rs 18,000 crore and decided to provide a fresh cash credit of Rs 2,200 crore. Of the Rs 18,000-crore debt restructuring plan, Rs 7,400 crore worth of non-convertible debentures, guaranteed by the government, would be issued, banking sources said here.

They said the 13-bank consortium, led by State Bank of India, has also agreed to give Rs 2,200-crore worth of fresh working capital loan to the ailing government carrier. The approval by the banks came 10 days after a Group of Ministers, headed by Finance Minister Pranab Mukherjee, decided to allow Air India to raise Rs 7,400 crore by issuing sovereign guaranteed non-convertible debentures.

 The debentures are likely to carry a coupon rate of 8.5-9 per cent and financial institutions may subscribe to these bonds, official sources said. This would be part of the carrier’s financial restructuring plan, which approved by the GoM on February 7. However, the bond issue would have to be cleared by the Union Cabinet, they said.

Official figures show the debt-ridden carrier has loans and dues worth Rs 67,520 crore, of which Rs 21,200 crore is working capital loan, Rs 22,000 crore is long-term loan on fleet acquisition, Rs 4,600 crore is vendor dues, besides an accumulated loss of Rs 20,320 crore. Banks and financial institutions had proposed several measures to beef Air India’s net worth and these were among the measures approved by the GoM, the sources said. Air India’s debt restructuring plan had hit a hurdle after the banks had refused to convert a part of the short- term debt into equity.

AI debt recast eludes banks

Source :Manojit Saha / Mumbai Jan 31, 2012, 00:40 IST

Bad debt can downgrade rating

Air India’s debt recast plan has hit a deadlock with both the national carrier and banks continuing to stick to their stand even as the regulator has disapproved providing dispensation, thus only compounding the problem.

Following the rejection of initial debt recast plan, SBI Caps — the merchant banking arm of State Bank of India which has the mandate of finalising the plan — had prepared four alternatives, and sought views from banks. All the banks agreed that the most preferred option would be to convert the debt into bonds which can be used for calculating the statutory liquidity ratio (SLR).

Even so, bonds to have SLR status would require the approval of the Reserve Bank of India. Banks preferred this option, as they will not have to take any hit in terms of provisioning, unlike the other alternatives of converting the debt into preference shares or to long-term loans.

The central bank, however, had turned down the proposal to give SLR status to bonds on the ground that it would set a wrong precedent. At this, bankers sought a timely resolution to the imbroglio, lest their entire exposure would slip into non-performing loan category. It would lead to high provisioning that can be the bottomline of banks. With rating agencies already raising a red flag on Indian banks due to rise in bad loans, such a huge amount becoming a non-performing asset (NPA) would leave banks to face with a rating downgrade.

According to rough estimates, if AI loan turns, it will lead to a 1 per cent increase in gross NPA of the Indian banking sector. The gross NPA ratio for the banking sector was at 2.25 per cent in 2010-11. This was lower as compared to the previous year, though it had increased in absolute terms.

In October last year, Moody’s Investors Service downgraded SBI’s financial strength rating based on the banking entity’s capital situation and deteriorating asset quality.

While the RBI rejected the idea of allowing bonds to have SLR status, it also said it might consider giving some leeway in terms of provisioning if the short-term loans were converted to long-term. Banks have to make provisioning if the loans are treated as long term, and interest rate is reduced as the net present value of the loan will fall. While banks are required to make upfront provisioning, RBI said the amount could be amortised over a time.

For the Rs 43,000-crore debt of Air India, there is a proposal to restructure by spending Rs 22,500 crore. A consortium of 26 lenders, with State Bank of India as the lead bank, has exposure to the troubled airline.

Govt makes another bid to save AI from NPA tag

Source :Saurabh Sinha, TNN | Jan 31, 2012, 06.00AM IST


NEW DELHI: The government is making last-ditch efforts to save Air India (AI) from the non-performing asset (NPA) tag. With repayment not forthcoming, Air India has not been able to pay installments to several banks and the 90-day period will be over on Tuesday. 

A senior AI official said the airline would be able to pay the Rs 215 crore as interest to banks in time to avoid being termed an NPA. 


Aviation secretary Nasim Zaidi is meeting AI CMD Rohit Nandan - the two men trying to preventing AI from shutting down - on Tuesday morning to review the situation. "AI would not default on interest payment to banks this time and, if need be, seek two-three days to make the payment to avoid the NPA tag," the official said. 

When pilots of the erstwhile Indian Airlines went on strike about a fortnight ago to protest non-payment of five months' performance-linked incentive (PLI) and salary, the government had promised to release Rs 150 crore for the airline to enable it to pay two months' PLI to employees. Based on this written assurance, the no-pay, no-work agitation was called off within a day. 

"That money has not come so far. We somehow paid one months' PLI to employees from our internal resources. We are told the promised Rs 150 crore would be released on Tuesday. Out of that, we will pay one more months' PLI and top it up from other resources to pay interest to banks," said the official.

However both AI and ministry officials admit that unless the government infuses a substantial amount of equity into AI, the airline will not be able to chug along like this.

Air India may not be able to service working capital loans

Sorce :livemint :P.R. Sanjai & Anup Roy:Thu, Jul 14 2011. 1:00 AM IST

Air India plans to raise $850 million (Rs.3,791 crore) to part-fund the purchase of 27 Boeing 787 planes as the state-run carrier battles to prevent working capital loans from turning into bad debt.


On Tuesday, Air India told finance ministry officials that the airline may not be able to service working capital loans from Indian banks if it doesn’t get an immediate equity infusion of Rs.6,600 crore from the government.


According to two Air India executives, if the carrier fails to make payments before 31 July, the loans will turn bad as no payments have been made in the last two months. A loan turns bad if a borrower doesn’t service it for three months. Neither of them wanted to be named as they are not authorized to speak to the media.


Without the equity infusion, the cost of borrowing will go up for the proposed $850 million debt-raising plan.


“The moment a company defaults in paying interest to banks, its future fund-raising programme gets affected, but Air India will get the benefit of being a government entity,” said Madan Sabnavis, chief economist at rating agency firm Credit Analysis and Research Ltd.
Air India has submitted a financial restructuring plan to the finance ministry. According to the plan, at least 60% of the total working capital will be converted into a long-term loan and the rest into cumulative preference shares for 15 years. It envisages a saving of Rs.1,000 crore a year in interest rates.
“The government has not cleared it as yet. If nothing fructifies, banks will have to classify the loan as a non-performing asset (NPA),” said a senior executive with a large public sector bank that has exposure to the carrier. He did not want to be identified.


Once a loan becomes an NPA, banks need to set aside money or provide for it. Besides, they also do not earn any interest on such loans.


“The government should take a decision whether we need to have an airline like Air India. If yes, it cannot be run as loss-making. Therefore, it needs to bring in private sector ethics to the organization,” Sabnavis said.


Air India should increase efficiency levels, lower expenditure and pare the workforce to cut its wage bill. 


Theairline has trimmed its workforce from 33,500 to 28,500 in the last three years.
Air India had debt of Rs.42,570 crore and accumulated losses of Rs.22,000 crore as of 31 March.
On Wednesday, Mint had reported that Air India was seeking a total equity support of Rs.42,920 crore till fiscal 2021. 


This includes guarantees for aircraft loans worth Rs.30,584 crore (both present and future) up to the 2021 fiscal year.


“It is possible to revive Air India, but it has to run like a commercial enterprise,” Sabnavis said.

Air India debt recast "in final stage", seen by June-end

Source :Reuters - By Anurag Kotoky and Swati Pandey:

NEW DELHI/MUMBAI | Thu May 19, 2011 4:49pm IST

Photo :Reuters:Pundit Paranipe

State-run Air India said on Thursday it is in "final stages" of discussions with banks for restructuring 200 billion rupees of debt and expects to complete the formalities by end-June.

According to the plan, a portion of the debt will be converted into long-term loans at fixed rates of interest with the remainder being converted into cumulative redeemable preference shares which will be redeemed after 15 years.

For banks, to avoid a default from Air India -- reeling under accumulated loss of nearly 160 billion rupees over three years -- the only option is to agree to restructuring lest they will be further burdened with a huge amount of non-performing loans.

The restructuring will help the airline save at least 6 billion rupees in interest costs and boost liquidity, spokesman K. Swaminathan wrote in an email response to a Reuters query.

Air India has set a target to enhance its revenues by 50 billion rupees and also to reduce costs by 40 billion rupees a year, post the restructuring, according to its website.

Of the 26 lenders, at least four with whom Reuters spoke expressed concern about the restructuring package.

"They are asking for large number of concessions, longer period, more amount to be converted into cumulative redeemable preference shares and at lesser rate of interest," said one of the lenders, who did not wish to be identified.

In the quarter-ended March, non-performing assets (NPAs) of several mid-cap banks rose sequentially and analysts expect the uptrend to continue as rising interest rates curb repayment capabilities of borrowers.

"This (Air India restructuring) is going to be a negative, particularly for the public sector banks," said Deepak Tiwari, banking analyst at K.R. Choskey. "But it's better to restructure than getting into NPAs."

"The public sector banks may resist such a restructuring if terms and conditions are not favourable to them. But if the government forces, they don't have any other choice," he added.

"If we don't go for this restructuring proposal, they're not going to repay the term loan. And, no banker can afford to have such a huge NPA on his book," another lender said.

For this reason, and the backing of the government, Air India's plan is likely to go through.

Loss-making Kingfisher Airlines, India's second largest airline by market share, restructured its debt earlier this year by converting into equity almost 12 billion rupees of loans from a consortium of 13 banks led by State Bank of India.

The lenders now own close to a quarter of the airline.

With Air India, which witnessed a pilots' strike recently and has failed to operationally merge with Indian Airlines, things are a lot bleaker, analysts and lenders said.

Bankers to the beleaguered carrier includes State Bank of India, Punjab National Bank, Oriental Bank of Commerce, Bank of Baroda, Central Bank of India and Bank of India.

SECTOR ALL FINE

Analysts and bankers, however, feel the airline sector, which has recently seen a healthy growth in load factor, has a lot of potential in Asia's third-largest economy.

An investor with a time horizon of 9-12 months can invest in the sector for a 30-40 percent return, said Rashesh Shah, an analyst with ICICI Direct.

Bankers also do not think after Kingfisher and Air India, other airlines will have to take such desperate measures.

"I don't think there is any problem in the sector. Go Air, it was until now a loss making company and it has turned the corner in 1-1/2 years. JetLite is doing well and SpiceJet is also doing extremely well," said a banking source.

Apart from volatility in crude oil prices, there is no other major worry for the sector in general, analysts said.

(Editing by Rajesh Pandathil)