AI goes for leaseback option for Boeing Dreamliners

Last Updated: Tuesday, November 29, 2011 - 22:56

New Delhi: A day after its lenders approved its debt restructuring plan, Air India on Tuesday decided to go in for sale-and-leaseback option for Boeing 787 Dreamliners instead of their outright purchase, as its Board reviewed the latest financial position of the cash-strapped company.
The Board, which reviewed Air India's operations and the implementation of its turnaround programme and Financial Restructuring Plan, also decided to lease out excess capacity of two Boeing 747-400 planes and some 777-200 LR aircraft after the Dreamliners were inducted, a spokesperson said.
As per AI's plans, the acquisition of 14 of the 27 Boeing 787 Dreamliners that will join its fleet by 2014, is likely to be made through sale-and-leaseback.
Sale-and-leaseback or leaseback in short is a financial transaction where one sells an asset and leases it back for the long-term. Hence, one is able to use the asset continuosly but does not own it.
The Board, at its meeting here today, approved the issuing of Request for Proposal (RFP) for the B-787 planes under leaseback mechanism "pending a final clearance from the government", the spokesperson said.
The airline's top brass also reviewed the decision of the 13-bank consortium, led by State Bank of India, to approve the debt restructuring programme, subject to certain clarifications from the Reserve Bank of India which had last week given a nod to it.
Seeking to turnaround ailing Air India, Government is considering a nearly Rs 30,000 crore package for the state-owned national carrier over a period of 10 years.
According to the proposal, government is considering writing off Rs 4,500 crore cash loss of Air India, infusing additional equity of Rs 6,750 crore and Rs 17,000-18,000 crore for its fleet acquisition programme.

Airline sources said supply of food to passengers on flights below 90 minutes may be stopped. The move, if taken, would save about Rs 20 crore per annum for the company.

While reviewing Air India's financial position, the Board was informed that while passenger revenue for 2010-11 increased by Rs 1,294 crore due to growing yields.

However, the major negative factor impacting its profitability was a hike of Rs 1,097 crore or 18 percent in fuel costs, the spokesperson said.
The other factors which adversely affected its financial bottomline included a hike in wage costs by Rs 295 crore due to increased gratuity provision, rise in depreciation by Rs 300 crore due to addition in fleet and increase in interest costs by Rs 860 crore caused by increase in borrowings and a hike in the rates.

The airline Board was informed that the company was in the process of implementing the Financial Restructuring Plan which would provide a saving of Rs 1,000 crore per annum by way of interest costs.

As per the plan approved by a Committee of Officers of the government, Air India was aiming to achieve an overall load factor of 73 percent in the near future.

Among the key performance indicators, its passenger revenue for October showed an increase of 5.2 percent even after reduction of capacity by 2.9 percent compared to the same period last year.

While passengers carried rose by 4.9 percent, passenger load factor improved by 2.6 percent and the average yield per RPKM (Revenue Passenger per Kilometre) improved by four percent, the spokesperson said.

The meeting of the Board came in the backdrop of the government planning to consider a major bailout package for the ailing national carrier which is expected to roll out over a period 10 years.

A Cabinet note, taking cognisance of the entire bailout package, will be prepared by the Civil Aviation Ministry soon.

The total debt of Air India, consisting of aircraft loans and working capital loans aggregate Rs 43,777.01 crore. The working capital loan is Rs 21,511.10 crore while the aircraft loan is Rs 21,412.06 crore, latest figures show.

The national carrier has registered a loss of Rs 5,548.26 crore during 2008-09, Rs 5,552.44 crore during 2009-2010 and Rs 6,994 crore (provisional) during 2010-11.


First Published: Tuesday, November 29, 2011 - 19:46

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