AIR INDIA:

MAHARAJA IN DEBT
TRAP
Case Study

B y G ro u p 5
T h e In d ia n A v ia tio n In d u s try

41 Million
Market Size:
16 Billion USD Internatio
(for FY n
2014) al
passengers
121 Million 449
Domestic Airports
passengers (As in 2016)
 Problems
P l a g u i n g Air India

01 02 03 04 05 06
Huge debt Low Routing Managerial Poor ratings Internal
worth 500 employee network issues on key Incompatibility
Billion INR - morale issues metrics:
Interest (a)On
coverage performance
ratio of 0 time
(b)Aircraft
turnaround
time
(c) Passeng
er n
Th e 1.5 Billion INR operating profits after
Tu rn a ro u n d a DECADE of loss making
Man – Ashwani
Lohani
• Cannot sustain with such modest profits
Air I n d i a -
given the huge amount of debt Po s s ib le W a y
Out
• The way forward for Maharaja is to get
away from the debt trap

Restructurin
g Plan

Strategic
Privatization
Buy-
 R e s t r u c t u r i n g Plan
Convert part of the loan into equity
S4A (scheme for sustainable structuring for stressed assets). Loan is
divided into sustainable and unsustainable portion. The bank would
convert the unsustainable loan into equity
Saving 10 Billion INR annually

Swap high cost debt with non-convertible debentures. Annual Savings worth 2
billion INR

Banks issue preferential capital with a fixed rate of dividend payable

Issues in implementation: Price

S tra te g ic

B❑ u y o u t
Tata in talks to buy controlling stake

❑ IndiGo interest in international opportunities and

Air India Express
 Pros:

• Low interest rate

• If dollar appreciates, lower capital
repayment
Dollarizin
g Debt Cons:

• If dollar depreciates, capital and

interest repayment both will in
rupee terms
 Way Forward

This implies an EBIT of 20% to

Finance costs of over 40 billion cover the interest rates from the
INR annually against a revenue of comparative of different airlines,
200 billion INR it can be seen that such margins
are very difficult to come by

Government should ask for EoI

(Expression of Interest) from
No company is willing to buy companies as to how
given the huge amount of debt much debt they are willing to
take otherwise
they burden of debt will only
continue to rise
TH ANK
YOU