Air India’s SPV seeking to lighten its debt burden. Know how

New Delhi: Air India’s SPV that houses its debt, Air India Assets Holding (AIAHL), is going to make a case before its lenders to cut interest rates from 10.5-11 percent at present to nearly 8.5 percent on the Rs 29,464-crore working capital debt, an official source said. They added that AIAHL is looking to renegotiate and refinance the debt. The national carrier’s debt was moved to the SPV in 2018 to make the airline active to investors at a time when the government was planning to disinvest Air India.

What if the interest rates are slashed?

If Air India’s SPV move happens to be successful, AIAHL will rid itself of an interest burden of nearly Rs 300-400 crore per year. It would recast Rs 15,000 crore of the expensive debt. However, as of now, it is unclear if a reduction in interest rates would be approved as lenders, including the State Bank of India (SBI), are not obligated to cut rates.

A final call on the matter hinges upon the decision taken by the banks’ management and the central government.

The history of the SPV

The government incorporated the Air India’s SPV in January 2018 after it approved the transfer of Air India’s accumulated working capital loan over to AIAHL on February 28, without the backing of any asset. This was done to attract buyers for the airline. The national carrier’s non-core assets like artefacts and paintings were also kept with the AIAHL which the PSU is expected to monetise. Air India’s total debt stands at Rs 55,308 crore.