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

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

The money will be used to cover daily air traffic and losses, fleet renovations, aircraft leases and IT operations overhaul, a person familiar with the development said.

The second person stated that the loan maturity will be three years, fixed at 7.5-8% reset per annum.

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

Interest rates have risen and liquidity in the system has dried up, which will affect borrowing costs, a bank official warned. The threshold for 364-day T-bills is 6.91%, according to the Reserve Bank of India website.

Spokespersons for Tata Sons and Air India did not respond to ET’s email queries till press time.

In October last year, Tata Sons through Talace won a 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 nationalized it in August 1953.

Since then, the Tatas have tried 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 wants to triple its fleet of 113 aircraft in the next five years. In September, it agreed to lease five wide-body Boeings and 25 narrow-body Airbuses for the next few years. The aircraft will be added to the fleet in 15 months, starting in December. Air India has agreed to short-term leases, which tend to be expensive.

“Depending on the age of the aircraft, short-term leases can be 15% higher than long-term,” said a former Air India executive, who did not want to be named. “But please note that Air India has leased Boeing 777-200LRs, which are hardly in vogue these days. It would be reasonably priced.”

According to consultants who were part of the process, Tata executives discovered during a pre-purchase inspection that the conglomerate would have to spend more than $1 billion to refurbish Air India’s planes and make them ready for flight. Those expenses have risen above estimates, people familiar with the matter said.

Aircraft refurbishment is also affected by supply chain issues around the world that would delay the delivery of new seats or in-flight entertainment screens.

Air India’s new owners are also spending on IT integration. “The Tats have created six verticals to completely overhaul the airline’s back-end. Satya Ramaswamy is at the helm,” the person said.

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 prospects.

Tata also awarded a new enterprise resource planning (ERP) contract to Germany’s SAP. An ERP software system can integrate multiple functions such as planning, inventory purchasing, sales, marketing, finance, and human resources. “The ERP product is cloud-based,” said a person with knowledge of the matter. “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 revamping its core team, luring seasoned executives from peer airlines and 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 brought in to advise on workforce management and expansion, one of the people cited above said.

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