Air India has managed to secure a substantial loan to fuel its aggressive growth plan. The airline is busy buying and leasing aircraft, offering voluntary retirement benefits to employees, pay hikes to pilots, refurbishing its existing fleet, and overhauling its customer-facing processes, among other things. And all of this requires massive funding, for which the latest loans are expected to help.
$1.7 billion loan
Air India has secured a loan of approximately $1.7 billion from two Indian banks. While the airline or the banks have not made any official statements, a report by Mint cites sources about the funding coming from the State Bank of India (SBI) and Bank of Baroda (BoB).
The development is not all that surprising as just last month it was reported that the carrier was preparing to take loans from SBI and BoB, and these are, in fact, the same banks from which it took billions in loans at an interest rate of 4.25% last year.
According to Mint, around $1.2 billion from the current funding comprises refinancing existing loans, and the rest will come through the government’s Emergency Credit Line Guarantee Scheme (ECLGS).
Funding the growth
The Tatas have undertaken a massive task of healing a highly bruised Air India as a former state-run airline. It is revamping pretty much every aspect of the airline, from its fleet structure and optimization to its approach toward customer satisfaction.
Mint says that the current funding will be used to fuel Air India’s domestic and international expansion for which it has acquired planes on short leases as well as placed a massive 470-plane order with Airbus and Boeing.
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The carrier also recently offered some of its employees another chance to opt for a voluntary retirement scheme (VRS) as it moves ahead with its workforce optimization plan. It will need millions just to give out the benefits to those who will opt for the scheme. Part of the latest funding is expected to go towards that as well.
Turnaround
Air India has also committed $400 million towards refurbishing its entire widebody fleet, which is long overdue considering the mounting customer complaints over the years, which have mostly been ignored during its government-run years.
The airline’s Chief Executive Officer Campbell Wilson is aware of the massive changes taking place within the airline and recently commented,
"It’s certainly the biggest aviation turnaround, I think, that I am ever aware of... I don’t think there is anything that has ever been attempted like this before."
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Given the scale of improvement and the size of its ambitions, the latest loan probably won’t be the last that Air India will secure, on top of the funding it will receive from the Tata Group.
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Source: Mint