Financial restructuring models for airlines industry: An Indian perspective

Abstract

The Indian Airlines Industry is reeling under heavy loss especially in the domestic sector despite reasonably high passenger traffici. Despite the better passenger turnover after the recession, the three Full Service Carriers (FSCs) suffer from debt of Rs 63315 croresii and reported net losses due to the huge interest burden. Most of the airline companies are unable to raise money from the market due to burden of heavy debt. Banks are hesitant to lend money to the Airlines companies due to huge debts and existing exposure of the banks to the airlines sector. The Debt-Equity ratios of the FSCs do not seem to be promising either. To assist the airlines industry and to prevent Air India Ltd from being declared "sick"iii, the Reserve Bank of India has approved the banks' plans to restructure debt of the aviation sectoriv. Air India has sought approval from the Reserve Bank of India (RBI) to convert a major portion of its working capital loans into term loans with a moratorium on the principal repayment. Also an equity infusion of Rs 1200 crores has been declared which will help Air India Ltd to reduce its debtv. The RBI has already cleared the debt restructuring plan of Kingfisher Airlines. And the other major air lines Jet Airwaysa is also under financial distress and had drawn out its own restructuring plan to improve its financial health The scenario described above is not unique to the Indian Airlines industry; many other International airlines such as Garuda Indonesiavi and Malaysian Airlinesvii have undergone financial restructuring process in the recent past. The objective of this CCS project is to study the financial restructuring models of the Airlines Industry and also to understand the Indian perspective, do comparative analysis with models implemented in other countries and analyze the long term sustainability of the current models implemented in India along with an evaluation of the restructuring plan in terms of understanding its impact in the financial health of the company