In order to repay the short-term loans raised to fund the acquisition of widebody aircraft, Air India has floated a tender to sell and lease back seven of its aircraft that would help the airline raise at least $856 million. While the proceeds from the sale of these aircraft will be primarily used to finance their acquisition, it will also partially help Air India in meeting its immediate liquidity requirements. This assumes significance given the delay faced by the airline in raising Rs 500 crore from the market. A senior airline official, however, said that Air India is expecting the Rs 500 crore loan to come in by next week.
In a tender document posted by Air India, it plans to sell six of its Boeing 787-8 Dreamliner aircraft and one Boeing 777-300ER aircraft. The six Dreamliners were delivered to Air India between November 2016 and October 2017, while the 777-300ER was delivered in March 2018. “Air India intends to finance its aircraft through operating Sale & Lease Back (SLB). It is proposed to use the sales proceeds under SLB for the repayment of bridge loans taken for acquisition of these aircraft,” the airline noted.
Under the SLB agreement, Air India will sell the aircraft to the lessor and immediately lease the same planes back under an operating lease for a period of up to 12 years with an option to extend by three more years. Based on the age of these aircraft, Air India has set a reserve price for the Dreamliners ranging between $105 million and $123 million. For the 777-300ER, the airline has set a reserve price of $157 million. As per Boeing, the 787-8 aircraft has an average list price of $239 million, while the 777-300ER has an average list price of $361.5 million.
Air India’s attempt to raise funds through SLB comes at a time when the industry is reeling under pressure due to high fuel prices. This has resulted in all the three listed airlines in India — Jet Airways, IndiGo and SpiceJet — to report losses for the September quarter. Air India accumulated total losses of Rs 47,145.62 crore in 2016-17, according to its audited accounts. Airlines opt for the sale and leaseback model to finance their aircraft as it eases the burden on their immediate liquidity requirements.
Currently, Air India has 27 Boeing 787-8 aircraft, of which 21 are already leased through sale and leaseback model. The airline owns 15 Boeing 777-300ER aircraft. It has a total of 49 widebody aircraft.
The airline had floated a tender to raise Rs 500 crore in September but after not receiving a single bid from banks for over a month, Air India had extended the date of its tender in October till end of that month. This had come after senior officials of the airline reached out to bankers, who needed more clarity on the company’s stake sale and revival package plans. According to a senior Air India official, who spoke on condition of anonymity, bankers were also concerned about the development in the power sector, where the Allahabad High Court refused to give any relief to power plants from the Reserve Bank of India’s new framework, issued on February 12 this year, for resolving bad loans. Air India has a debt of nearly Rs 55,000 crore.