Maharaja’s coffers go empty and the banks aren’t lending

Maharaja’s coffers go empty and the banks aren’t lending

State-owned behemoth National Aviation Company of India Limited is facing rough weather with many banks refusing...

State-owned behemoth National Aviation Company of India Limited (Nacil) is facing rough weather with many banks refusing to lend short-term funds to the company. Its working capital need this financial year,which is already 42 per cent higher than last year,is likely to surpass the company board’s sanctioned limit of a whopping Rs 13,550 crore.

According to civil aviation ministry sources,Nacil is being forced into “distress borrowing” now since most banks are willing to roll over the company’s short-term loans. The exposure of banks has breached the limits set for a single company. “Instead,they (banks) have now demanded a comfort letter from the government,” said an official who did not want to be quoted.

In a recent presentation to civil aviation secretary M Madhavan Nambiar — a copy of which is with The Indian Express — Nacil said it is imperative that the government bail it out with a Rs 2,750-crore soft loan and a Rs 1,231-crore equity infusion soon. “This will strengthen the balance sheet and infuse confidence among institutional lenders to support the aircraft acquisition programme,” it said.

When contacted,a Nacil spokesperson said,“The board has revised the working capital limits if the equity infusion does not take place. So far,we haven’t had any problems in raising working cap from banks nor in the rollover of loans.”


A ministry official said,“We are examining the proposal. A decision on the matter will be taken soon. We are committed towards a turnaround of the airline.” As the airline’s losses mount,vendors have put credit on hold. The induction of 111 new aircraft has put the company in a precarious position,with its debt equity ratio looking extremely stretched now. The airline has a low equity base of Rs 145 crore when compared to the Rs 44,000 crore borrowing for aircraft acquisition.

While the aviation industry on the whole is expected to post a loss of around Rs 4,000 crore,India’s state carrier will account for over 50 per cent. Nacil,formed after the merger of Air India and Indian Airlines in 2007,surpassed its own estimations of losses for 2007-08. It suffered a loss of Rs 2,226 crore during 2007-08,which Nacil projected would be brought down to Rs 2,156 crore in the current financial year. By its own admission now,“this is likely to be higher.”

Stating reasons for projecting higher losses,the company has said that on account of higher fuel prices,its annual fuel bill is likely to shoot up this fiscal to Rs 7,564 crore from Rs 6,712 crore,with Q4 alone accounting for an additional Rs 600 crore. The global slowdown has dug another nail in the coffin as its capacity utilisation is expected to be much lower than the estimated 73.5 per cent. Interestingly,the airline has cited “presence of low-cost carriers in all markets” for the “severe strain” on its revenue generation.