Air India Ask its Lender to Cut its Interest Rates by 2 Percent

Air India Ask its Lender to Cut its Interest Rates by 2 Percent

In debt with INR 46,000 Crore, Air India has requested 16 lenders to cut their interest rates on the loans it has provided by 2 percentages.

If bankers accept the request then the interest rate will come down to approximately 8.5 percent from earlier 10 percent. One of the Air India officials said “This would result in annual savings in interest costs of about INR 200 crore on loans of around INR 15,000 crore. We have written to around 16-17 banks and to the consortium leader State Bank of India. The banks have so far not responded and they usually take their time.”

The airlines has asked the banks to adjust the rates on loans to the marginal cost of funds based on lending rates which are not exceeding 50 basis points. This will see a lower interest rates which is linked with base rate. Base rate is based on average cost of funds and for banks it is typically higher than MCLR. SBI’s one year MCLR is 8 percent (approximately), compared to a base rate of 9.10 percent.

The airline has earned an operating profit of INR 105 crore in 2015-16. One of the official said, “We expect to post similar level of operating profit in 2016-17.”

The reduction in the prices of Aviation Turbine Fuel has helped the airline boosts its operating performance. The total costs incurred by ATF reduction to INR 5,845 crore in 2015-16 as compared to INR 8,449 crore in 2014-15.

The debt of total INR 46,000 crore by the end of March 2016 made the airline incur the loss.

Despite the high loss accumulated over the year, the airlines have survived under a financial restricting and a turn around plan funded by the Centre. Against the annual asset sale of INR 500 crore, the company has been able to sell only four flats at Sterling Apartments, Mumbai.