To repay short-term loans raised to fund the acquisition of wide-body aircraft, Air India has launched a tender to sell and lease seven of its aircraft which will help the airline raise at least $ 856 million. While the proceeds from the sale of these aircraft will mainly be used to finance their acquisition, it will also help some of Air India to meet its immediate liquidity requirements. This assumes significant considering the delay faced by the airline in increasing Rs 500 crore from the market. A senior flight official, however, said that Air India expects an Rs 500 crore loan to come next week.
In a tender document installed by Air India, they plan to sell six Boeing 787-8 Dreamliner aircraft and one Boeing 777-300ER aircraft. Six Dreamliners were sent to Air India between November 2016 and October 2017, while 777-300ER was sent in March 2018. "Air India intends to finance its aircraft through Sale & Lease Back (SLB) operations. "It is proposed to use the proceeds below the SLB for bridge loan payments taken for the acquisition of this aircraft," the airline noted.
Under the SLB agreement, Air India will sell the aircraft to the lessor and immediately lease the same aircraft under an operating lease for a period of up to 12 years with an option to be extended for another three years. Based on the age of this aircraft, Air India has set a reserve price for Dreamliners ranging from $ 105 million to $ 123 million. For 777-300ER, the airline has set a reserve price of $ 157 million. According to Boeing, the 787-8 aircraft had an average selling price of $ 239 million, while the 777-300ER had an average selling price of $ 361.5 million.
Air India's efforts to raise funds through SLB occurred when the industry was shaken under pressure due to high fuel prices. This resulted in the three registered airlines in India – Jet Airways, IndiGo and SpiceJet – reporting losses for the September quarter. Air India accumulated a total loss of Rs 47,145.62 crore in 2016-17, according to the audited account. Airlines chose a sales and leaseback model to finance their aircraft because it reduced the burden on their immediate liquidity needs.
At present, Air India has 27 Boeing 787-8 aircraft, of which 21 have been leased through sales and leasing models. The airline has 15 Boeing 777-300ER aircraft. It has a total of 49 wide-body aircraft.
The airline has been bidding to raise Rs 500 crore in September but after not receiving a single offer from the bank for more than a month, Air India has extended the tender date in October to the end of the month. This happened after the senior airline officials reached out to the bankers, who needed more clarity about the planned sale of shares and the company's revival package. According to a senior Air India official, who spoke on condition of anonymity, bankers were also concerned about developments in the electricity sector, where the Allahabad High Court refused to provide assistance to power plants from the Reserve Bank of India's new framework, which was issued. on February 12 this year, to settle bad credit. Air India has debts of almost Rs 55,000 crore.