Successful implementation of Air India debt rejig may draw similar moves from other PSEs

Successful implementation of this scheme may prompt other struggling PSEs to look into S4A to tackle their stressed financial structures as well.

Written by Kanishka Singh | Published:October 16, 2016 5:52 pm
RBI, Air India, BSNL, Air India debt rejig, Air India debt, news, latest news, India news, national news,  Just like Air India, BSNL had started on a turnaround track during the last fiscal and has moved aggressively this financial year giving strong competition in the last quarter to established industry leaders. (File)

The Reserve Bank of India’s debt rejig scheme may prove to be a boost for Air India’s efforts to stay in the green after years of operating in losses and accruing debts of over Rs 52,000 crore. After seeing its way back into operating profit zones during the last fiscal, the carrier is now considering a restructuring of its bad assets and debts by tapping into RBI’s Scheme for Sustainable Structuring of Stressed Assets (S4A) and it would be the first public service enterprise to tap the policy. Successful implementation of this scheme may prompt other struggling PSEs to look into S4A to tackle their stressed financial structures as well.

The central bank’s scheme is meant to bolster the lenders’ abilities to better handle stressed assets and rescue struggling institutions by restructuring their finances. The policy is aimed at decreasing the issue of rising NPAs in the banking and finance industry in the country.

First, the total cash flow will have to be accounted for beforehand but it will also be a relief to the 19-lender consortium that have loaned out money to Air India. After that is completed, sustainable debt can be quantified. Just like Air India, BSNL had started on a turnaround track during the last fiscal and has moved aggressively this financial year giving strong competition in the last quarter to established industry leaders. PSEs like BSNL may also look keenly at the Air India’s potential S4A experiment.

According to PTI, the carrier is looking at a massive debt rejig of around Rs.10,000 crore. The airline had posted Rs105 crore operating profit during the last fiscal, first time in the green in at least a decade. Although the airline is carrying on further on a government bailout package. However, PM Modi said in his Independence Day address that the airline is expected to post operating profits of around Rs 700 crore for this financial year.

The picture still is a bit hazy. Despite operating profits, the losses are above Rs 3,500 crore a year. Financial overheads take a huge toll in Air India’s case. On part of the government, it has done the groundwork. Early mover advantage that the airline has will help it counter the floodgate effect of 100 per cent FDI in the aviation sector. It will also get first priority in bilateral rights allotment. There have been attempts at divestment but the massive losses have prevented any attempts of privatisation from succeeding. Even though the PM oversaw the successful turnaround of GSPC in Gujarat as Gujarat CM instead of selling stake, it will be in the best interest of the government and the carrier to be privatised.

In hindsight, Air India has been plagued by legacy issues with the Ministry during the UPA rule. The Congress-led UPA government had placed exorbitant orders in excess of needs and budget. SInce 2014, The current government Air India CMD Ashwin Lohani have notably improved the scheduled operations cutting down on delays by putting a show cause system in place for delays over 30 minutes

The airline still has a total debt burden of Rs 52,000 crore on itself and has set a payout plan of Rs 5,800 crore a year. The carrier is currently on a Rs30,000 crore bailout package from the government that is spread out over 10 years. Rs 22,000 have been paid to Air India till date. With wise financial management and clever business policies, Air India might move significantly quicker on the path of revival.