Economic activity

Air India could secure $1.8 billion in working capital loans


The Tata Group is eyeing more capital infusion for Air India in the form of loans as it seeks to effectively run the airline and solve its problems. The new owners of the airline have ambitious plans for the next five years, which include the development of the fleet and the network, the digitization of various processes and the renovation of the aircraft, among others. The new loans will add to the billions the Tata Group raised for the purchase of Air India last year.


New loans

The Tata Group is reportedly in talks with banks to raise around $1.8 billion in working capital loans for Air India, to be used for its turnaround strategy. A person familiar with the matter told the Economic Times (ET) that the money would go towards day-to-day operations, aircraft leasing and refurbishment, among other things.

SIMPLEFLYING VIDEO OF THE DAY

Air India is undergoing a facelift. The airline had been overlooked as a common carrier and had racked up billions in debt over the years. In fiscal 2022 alone, it lost around $1.1 billion.

Photo: Airbus

The Tatas had taken advice from consultants before buying the airline, and it was estimated that they would need more than a billion dollars to refurbish the plane. Some sources reveal that these expenses have since increased. Some believe that given current trends, Tatas could secure the loans for three years at a rate of around 7.5-8%.

Previous funding

The Tatas had set up a new subsidiary to handle the deal with Air India, known as Talace, which took out unsecured loans of over $3 billion from various banks for a period of one year. This sum is about to be renewed at the end of January next year.

Most of that loan (about $2.36 billion) was used to fund the purchase of Air India, and the rest was set aside for the carrier’s operational costs.

But taming a beast like Air India was never going to come cheap, and the Tatas are aware they need more funding to go ahead with their ambitious plans.

Photo: Boeing

Plan Execution

Air India CEO Campbell Wilson said he wanted to create an airline brand to compete with other well-known global carriers such as qatarairways, Emiratesand Airlines to Singapore. In order to deliver consistent quality, new owners need to invest in several things including new aircraft, technology and customer experience.

The new management has already put in place some of these plans, such as short-term aircraft leasing, although such arrangements can be expensive. A former AI executive told ET,

“Depending on the age of the aircraft, short-term rentals could be 15% higher than a long-term rental. But be aware that Air India leased the Boeing 777-200LRs, which are hardly in vogue these days. He would have gotten a reasonable rate.

The airline is also hiring employees across all departments and recently attracted more than 73,000 applications in two months for the cockpit and cabin crew the roles. The Tatas are also not shy about recruiting qualified executives from industry, even if it means offering them impressive salary increases.

The carrier is also investing in technology and has signed contracts with companies based in the United States and Germany to effectively manage various aspects of business management, including customer interaction and relations and the integration of functions such as planning, inventory purchasing, sales and marketing.

While these changes will not happen overnight, given the scale of the improvements needed, the hope is that passengers will begin to notice stark differences in Air India’s product within the next year or two. .

What do you think of the Tata group’s strategy vis-à-vis Air India? Please leave a comment below.

Source: The economic period

  • Tom Boon-200
    Air India
    IATA/ICAO code:
    AI/AIC
    Airline type:
    Full service carrier
    Hub(s):
    Delhi Indira Gandhi International Airport
    Year of foundation:
    1946
    Alliance:
    star alliance
    CEO:
    Campbell Wilson
    Country:
    India