It's hard to find companies in India who can match the privileges of public sector units (PSUs). Air India's recent tender to raise Rs 1,000 crore short-term loans is a shining example of what an organisation can do if it's backed by the government.
The document inviting bids for a one-year loan says that "banks are requested to submit their financial bids which should be linked to MCLR/GSEC (marginal cost of funds based lending rate/government security) rates latest by 4pm of June 13, indicating the amount of GOI-guaranteed short-term loans that they are willing to offer and the all-inclusive rate for the loans." The document further says that "Air India reserves the right to repay/refinance the loan during the tenure of the loan without any pre-payment penalty or requiring any notice period."
The wording of the tender reflects an attitude that only a PSU can carry. To say the least, AI is a loss-making airline which already has an outstanding debt of Rs 48,781.3 crore as on March 2017. The only thing that AI can possibly brag about is its EBITDA (earnings before interest, tax, depreciation and amortisation)-level profitability for the past three years till 2016/17. For instance, the national airline posted EBITDA profits of Rs 2,096 crore in 2016/17. For the same financial year, its net losses stood at Rs 5,765.2 crore. With crude prices remain at elevated levels; the profitability of the airline sector has started to come under pressure.
In a fair world, banks would scoff at such tender but AI is not an ordinary enterprise. The airline is fully owned by the government, and therefore its loans, unquestionably, are backed by the government too. Despite its bad financial condition, the banks might not be apprehensive in lending to AI because the government always has taxpayers' money at its disposal even if AI is unable to pay back the loan on its own.
Last October, AI has sought proposals from banks for "urgent" working capital loans worth Rs 1,500 crore, and received money from Bank of India.
But why does AI need short-term loans? The purpose is not mentioned in the document but several reports suggest that the airline has been going through a severe cash crunch over the past few months. AI has delayed employee salaries for three months in a row, and is reportedly seeking Rs 2,000 crore of additional funds from the government. As part of its 10-year turnaround plan starting 2012, the airline has already spent over Rs 26,000 crore out of Rs 30,231-crore bailout package.
The government has recently failed to attract bidders for selling its 76 per cent stake in AI. Sources say that due to the disinvestment process, plans to raise loans were put on hold as banks were cagey about lending to the carrier. With the disinvestment process in limbo, AI is seeking fresh loans to keep operations running.
One can only imagine the plight of a private sector company as leveraged as AI asking for a loan. And here's a loss-making PSU inviting bids as if banks need AI more than AI needs banks!