Centre extends guarantee for NACIL's Rs5,500 crore loan

Mumbai: The Government of India quietly decided to guarantee a Rs5,500-crore borrowing by the National Aviation Company of India (Nacil) for the purchase of 21 aircraft from Airbus last month, it would appear, even as it was pressurising the state-owned carrier to submit a satisfactory restructuring proposal if it hoped to access government financing or guarantees.

State-owned NACIL, a company created by the merger of Air India and Indian Airlines, has been desperately looking to raise term loans from banks for well over a year. It had failed in its efforts primarily because banks insisted on a government guarantee.

The loan, according to banking sources, is of a 13-year tenure, with Nacil liable to pay just interest for the first year of the loan. The interest rate is linked to IDBI's prime lending rate.

According to details made available, the loan has been arranged by IDBI, acting as the lead bank on behalf of a consortium of lenders including the Punjab National Bank (Rs500 crore), Canara Bank (approx.Rs1,000 crore) and the Union Bank of India, Bank of Maharashtra, Central Bank of India and Allahabad Bank. Along with the PNB, IDBI itself will furnish Rs500 crore. 

Nacil, which has registered a loss of Rs5,000 crore for the financial year 2008-09, is purchasing new aircraft to replace its ageing fleet. The new aircraft are expected to improve fuel efficiency and otherwise help raise its profile in domestic and international markets where the struggling carrier has been steadily losing market share.

Nacil operates a fleet of 155 aircraft, including those owned and leased.