Tata eyeing Rs 15,000 crore working capital debt for Air India

The Tata Group is in talks with banks to raise working capital loans of around Rs 15,000 crore for Air India, the carrier it bought from the government last year and is trying to revive.

The money will be used to cover day-to-day flight operations and losses, refurbish the fleet, pay for aircraft rentals and overhaul IT operations, a person familiar with the development said.

A second person said the term of the loan would be three years, setting it at a range of 7.5-8% reset each year.

Talace, the Tata Sons subsidiary that won Air India’s bid, raised Rs 23,000 crore in a one-year unsecured and unrated loan from the State Bank of India (SBI) last year , HDFC Bank and Bank of Baroda at 4.25%. The loan matures at the end of January.

Interest rates have risen and liquidity in the system has dried up, which will impact the cost of borrowing, a bank official said. The threshold for 364-day treasury bills is 6.91%, according to the Reserve Bank of India’s website.

Spokespersons for Tata Sons and Air India did not respond to ET’s emailed questions until press time.

In October last year, Tata Sons, through Talace, won Air India’s takeover bid for Rs 18,000 crore. He took control of the airline in January this year, 69 years after the government nationalized it in August 1953.

Change in carrier

Since then, the Tatas have tried to tackle every weak point – from poor customer service and archaic manual systems to inefficient old planes.

Air India’s cumulative losses at the end of March 2021 stood at Rs 83,916 crore. It lost another Rs 9,556.5 crore in FY22.

The airline aims to triple its fleet of 113 aircraft in the next five years. In September, it agreed to lease five Boeing wide-body aircraft and 25 Airbus narrow-body jets for the next few years. The planes will be added to the fleet in 15 months, starting in December. Air India has short-term leases, which tend to be expensive.

“Depending on the age of the plane, short-term rentals could be 15% higher than a long-term lease,” said a former Air India executive, who declined to be named. “But please note that Air India leased the Boeing 777-200LRs, which are hardly in vogue these days. It would have gotten a reasonable rate.”

During pre-purchase vetting, Tata executives found that the conglomerate would have to spend more than $1 billion to refurbish Air India planes and make them flight-ready, according to consultants who were part of the process. Well-informed people said these expenses exceeded estimates.

Aircraft refurbishment is also impacted due to supply chain issues across the globe, which would delay the delivery of new seats or in-flight entertainment screens.

Digitization costs

Air India’s new owners are also spending on IT integration. “The Tatas have formed six verticals to completely overhaul the airline’s back-end. It is led by Satya Ramaswamy,” the insider said.

The group would have awarded a new customer relationship management (CRM) contract to the American Salesforce. CRM is a technology for managing all of a company’s relationships and interactions with its customers and potential customers.

Tata also awarded a new enterprise resource planning (ERP) contract to German company SAP. An ERP software system can integrate several functions such as planning, inventory purchasing, sales, marketing, finance and human resources. “The ERP product is cloud-based,” the person with knowledge of the matter said. “Simply put, for the first time in Air India’s history, every penny it earns and spends will now be digitized and easily accessible.”

Meanwhile, Air India is rebuilding its core team, poaching seasoned executives from peer airlines, offering them salaries up to 50% above industry standards, ET reported on October 21. The Tatas have appointed a host of consultants to oversee the turnaround. PwC has been asked to advise on workforce management and expansion, one of the people quoted above said.

About Donnie R. Losey

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