Air India Secures ₹190 Billion Refinancing Deal to Bolster Operations
Air India, the flagship carrier headquartered at Delhi International, has successfully refinanced its short-term loans, consolidating its financial strategy for the coming years. The airline navigated a substantial refinancing deal, securing ₹190 billion (approximately USD2.29 billion) over a three-year term at an interest rate of 7.5% per annum. This move comes as a strategic refinance of an earlier bridging loan amounting to ₹180 billion (USD2.17 billion) obtained from the State Bank of India and the Bank of Baroda.
This financial reshuffling, executed in the last quarter of 2023, was reported by the Economic Times, highlighting the critical involvement of the State Bank of India and the Bank of Baroda in facilitating the refinancing. Specifically, the State Bank of India contributed ₹133 billion (USD1.6 billion) to the package, while the Bank of Baroda supplied the remaining ₹57 billion (USD690 million). This collaboration underscores the confidence these banking giants have in Air India, now under the ownership of Tata Sons, and their willingness to support the airline’s growth and operational needs.
The funds are earmarked for bolstering Air India’s working capital, ensuring the airline has the liquidity to meet its immediate and medium-term operational demands. The refinancing agreement reflects the airline’s strategic financial management, leveraging its relationship with major Indian banks to secure favorable terms. The decision to stick with the State Bank of India and the Bank of Baroda, rather than seeking new financing partners, underscores a preference for continuity and the advantageous terms these incumbent lenders offer.
The loan’s interest rate is pegged to the short-term government treasury bills, with an annual reset clause, offering a competitive edge in terms of financing costs. This dynamic reflects the premium positioning of Tata Sons and Air India in the Indian financial ecosystem, allowing them to negotiate lean margins that few other entities could secure.
Air India’s approach to financing is multifaceted, relying on domestic bank loans for operational liquidity while engaging international financial institutions for capital-intensive expenditures like aircraft acquisitions. In recent moves, Air India engaged with global banking institutions such as Japan’s Sumitomo Mitsui Banking Corporation (SMBC) and HSBC Bank for aircraft financing deals, underscoring its strategic approach to managing both operational and capital finance needs.
Looking ahead, Air India’s ambitious fleet expansion plans include significant orders with Airbus and Boeing, positioning the airline for substantial growth in the global aviation market. The refinanced loan plays a critical role in ensuring Air India has the financial flexibility to support its operational needs and strategic objectives, setting the stage for a new era of expansion and competitiveness on the international stage.