AI to raise Rs1,000 cr financing through private route

New Delhi: Battling severe liquidity problems, flag carrier Air India (AI) will raise Rs1,000 crore from banks and financial institutions in order to meet working capital needs. Run by holding company, National Aviation Company of India (NACIL), Air India is also raising long-term credit of about $3.5 billion (Rs17,500 crore) from a consortium of banks to buy aircraft.

AI has opted for the private finance route as it continues to await a government sanction of Rs4,000 crore intended to help it meet financial and operational needs. The government is still to provide a much-awaited bailout of Rs4,000 crore - Rs1,300 crore by way of equity and Rs2,700 crore as a soft loan - as it has queried the carrier on its fund-utilisation plans.

However, in the case of the current fund raising, the government has stepped in as guarantor which will lower the cost of funds. Airline officials have confirmed that the government will provide 0.5% as guarantee to banks for the entire Rs1,000 crore loan.

The Rs1,000 crore loan is part of the airline's attempt to turn itself around in three years. Its consultant Accenture had suggested a working capital limit of Rs14,000 crore. The working capital limit, at the time of the merger of AI and Indian Airlines was Rs6,500 crore, which was . subsequently raised to Rs8,000 crore, Rs9,500 crore and ultimately Rs12,550 crore early this year.

In an attempt to cut down operational costs Air India has slashed international flights and pruned domestic operations by 10%. NACIL incurred a loss of Rs 2,144 crore in FY2007-08.