Air India: in the red, unable to purchase fuel in advance and spending far more than can be said to be sustainable, but its priority is ensuring it can afford the delivery of the 787s it has on order.
Air India is to start the process of financing seven Boeing 787s by floating a proposal to raise $850 million (Rs.3,842 crore) within the next month. The Indian flag carrier is due to take delivery of the first of seven 787s it has on order between October and March 2012. The airline still has a total of 27 787s on order.
So how will, what is an essentially a state-owned carrier that shows all the hallmarks of Olympic during the early 2000s, come up with the cash when they cannot even pre-purchase fuel? The Indian carrier plans two fund-raising options. Firstly, from the market, and secondly and more likely, the US Export-Import (Exim) Bank. These methods are in accordance with the terms of Air India’s 2006 aircraft purchase deal with Boeing which includes these 787s in question.
We understand that Air India wishes to test both financing options to see if either one or a mix of both will be the best option. Air India as you may recall from previous posts in recent weeks has Rs.22,000 crore of working capital in government loans, against accumulated losses of around Rs.13,000 crore, the latter of which will increase far faster than the former in the current political climate.
So the news here is that Air India looks for now at least to be going for it and trying to fund the purchase of its aircraft on order and therefore has, in the short term, given up the idea of cancelling or deferring the order(s) and therefore will only do so if it really is unable to raise funds, i.e. not by choice, which is important to note going forward. We are told that Air India has put a hold on the tenders to lease 10 A330s pending the outcome of the financing for 787 deliveries. It could still be the case that if Ex-Im is unable to save the day in this instance, and it usually does, then Air India will fall back on leased A330s.
SO NO 787 DELIVERY EQUALS CRISIS AT AIR INDIA.
Watch to see how the spending spree goes down in government circles in the next few weeks as Indian politics begins to buckle ever so slightly under the strain of high food prices spreading discontent. Meanwhile look to the Star Alliance to give Air India a boost with membership.