Air India seeks Rs10,000-cr LIC loan for purchase of nine aircraft

National carrier Air India is looking to expand its depleted fleet with the addition of at least nine new planes in the current fiscal and the next and is in talks with Life Insurance Corporation of India (LIC) for a loan of up to Rs10,000 crore, say reports.

Air India is expected to get delivery of six Boeing 787 and three 777 aircraft, which are to be delivered in 2016-17 and 2017-18, as part of the 68-Boeing aircraft order that the airline had placed in 2005.

Air India chief Ashwani Lohani is reported to have discussed the proposal at a recent meeting with LIC chairman V K Sharma recently.

LIC is reported to have insisted that Air India should own these aircraft so that the loan can be extended. But, for this, Air India will have to approach the union cabinet to gets its approval to go in for the outright purchase of these nine aircraft instead of going in for a sale and lease back (SLB).

Under the original agreement signed with Boeing for purchase of 68 aircraft in 2005, Air India was to acquire and lease back these aircraft.  This arrangement, however, won't suit the lender as the leasing company has the first right to repossess the aircraft.

In case of Air India owning the aircraft, LIC can take over the aircraft in case of a loan default.

Air India needs the permission of the ministry of civil aviation for obtaining a loan from LIC for acquiring the nine Boeing aircraft under a rupee loan.

``The repayment tenure for the LIC loan will be about 20 years, which is longer than the 12-year repayment schedule for the earlier US Exim loan for acquiring aircraft. Besides, this will be a rupee loan so the airline will not be hit by exchange rate fluctuations and the rate of interest will be predetermined and will not be affected by any increase in the London Inter Bank Offered Rate (LIBOR), which is the case in the Exim loan,'' reports quoted a senior Air India official as saying..

The LIC loan will have a moratorium on the principal for the first few years, which will allow Air India to pay only interest.