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 person said the tenure of the loan will be three years, pegging it in the range of 7.5-8% reset annually.
(), and , at 4.25%. The loan comes up for renewal at end of January.
Interest rates have risen and liquidity in the system has dried up, which will impact borrowing cost, pointed out a bank official. The cut-off for 364-day treasury bills is 6.91%, according to the Reserve Bank of India website.
Spokespersons at Tata Sons and Air India did not reply to ET’s emailed queries till the time of going to press.
In October last year, Tata Sons, through Talace, won the bid to buy Air India for Rs 18,000 crore. It took control of the airline in January this year, 69 years after the government nationalised it in August 1953.
Change at Carrier
Since then, the Tatas have been trying to attack every pain point – from poor customer service and archaic manual systems to old, inefficient aircraft.
Air India’s accumulated 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 from 113 planes in the next five years. In September, it agreed to lease five Boeing wide-bodies and 25 Airbus narrow-bodied planes for the next few years. The planes will be added to the fleet in 15 months, starting December. Air India has agreed on short-term leases, which tend to be expensive.
“Depending on the age of the plane, short-term lease rentals could be 15% higher than a long-term lease,” said a former Air India executive, who didn’t want 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 found that the conglomerate would have to spend more than $1 billion to refurbish Air India planes and make them ready to fly, according to consultants that were part of the process. People in the know said those expenses have risen beyond estimates.
The refurbishment of planes is also impacted due to supply chain issues across the world, which would delay the delivery of new seats or in-flight entertainment screens.
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’s being spearheaded by Satya Ramaswamy,” said the person in the know.
The group is understood to have given a new customer relationship management (CRM) contract to US-based Salesforce. CRM is a technology for managing all of a company’s relationships and interactions with customers and potential customers.
Tata has also given a new contract for enterprise resource planning (ERP) to Germany’s SAP. An ERP software system can integrate multiple functions such as planning, purchasing inventory, sales, marketing, finance and human resources. “The ERP product is cloud-based,” said the person aware 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 team, poaching seasoned executives from peer airlines, offering them salaries up to 50% higher than industry standards, ET reported on October 21. The Tatas have appointed a slew of consultants to oversee the turnaround. PwC has been roped in to advise on workforce management and expansion, said one of the people cited above.