The Tata group is in talks with banks to raise working capital loans of about Rs 15,000 crore for Air India, the carrier it bought last year from the government and is trying hard to revive.
The money will be used to cover day-to-day air operations and losses, refurbish the fleet, pay aircraft rentals and overhaul IT operations, said a person aware of the development.
A second particular person stated the tenure of the mortgage will likely be three years, pegging it within the vary of seven.5-8% reset yearly.
Talace, the Tata Sons subsidiary that gained the bid for Air India, final yr raised Rs 23,000 crore of unsecured, unrated one-year mortgage from
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Interest charges have risen and liquidity within the system has dried up, which is able to affect borrowing value, identified a financial institution official. The cut-off for 364-day treasury payments is 6.91%, in line with the Reserve Bank of India web site.
Spokespersons at Tata Sons and Air India didn’t reply to ET’s emailed queries until the time of going to press.
In October final yr, Tata Sons, by means of Talace, gained the bid to purchase Air India for Rs 18,000 crore. It took management of the airline in January this yr, 69 years after the federal government nationalised it in August 1953.
Change at Carrier
Since then, the Tatas have been attempting to assault each ache level – from poor customer support and archaic handbook methods to outdated, inefficient plane.
Air India’s collected losses on the finish of March 2021 stood at Rs 83,916 crore. It misplaced one other Rs 9,556.5 crore in FY22.
The airline goals to triple its fleet from 113 planes within the subsequent 5 years. In September, it agreed to lease 5 Boeing wide-bodies and 25 Airbus narrow-bodied planes for the following few years. The planes will likely be added to the fleet in 15 months, beginning December. Air India has agreed on short-term leases, which are typically costly.
“Depending on the age of the plane, short-term lease rentals could be 15% higher than a long-term lease,” stated a former Air India govt, who did not need to be named. “But please note that Air India has leased the Boeing 777-200LRs, which are hardly in vogue these days. It would have got a reasonable rate.”
During the pre-purchase due diligence, Tata executives discovered that the conglomerate must spend greater than $1 billion to refurbish Air India planes and make them able to fly, in line with consultants that have been a part of the method. People within the know stated these bills have risen past estimates.
The refurbishment of planes can be impacted attributable to provide chain points the world over, which might delay the supply of recent seats or in-flight leisure screens.
Digitisation Costs
Air India’s new house owners are additionally spending on IT integration. “The Tatas have formed six verticals to completely overhaul the airline’s back-end. It’s being spearheaded by Satya Ramaswamy,” stated the particular person within the know.
The group is known to have given a brand new buyer relationship administration (CRM) contract to US-based Salesforce. CRM is a know-how for managing all of an organization’s relationships and interactions with prospects and potential prospects.
Tata has additionally given a brand new contract for enterprise useful resource planning (ERP) to Germany’s SAP. An ERP software program system can combine a number of features equivalent to planning, buying stock, gross sales, advertising and marketing, finance and human assets. “The ERP product is cloud-based,” stated the particular person conscious of the matter. “In simple terms, for the first time in Air India’s history, every penny that it earns and spends will now be digitised and easily accessible.”
Meanwhile, Air India is rebuilding its core workforce, poaching seasoned executives from peer airways, providing them salaries as much as 50% larger than business requirements, ET reported on October 21. The Tatas have appointed a slew of consultants to supervise the turnaround. PwC has been roped in to advise on workforce administration and enlargement, stated one of many folks cited above.