A consortium of lenders to state-run Air India has broadly approved its financial restructuring plan, a move that would come as a huge relief for the cash-strapped airline, a source with direct knowledge of the development said on Monday.
The lenders' consortium plans to seek "minor clarification" from the Reserve Bank of India (RBI) on the restructuring plan, the source said, after a meeting of the lenders of the troubled carrier in New Delhi.
Last week, the RBI had approved extension of the tenure of loans to the state carrier by five years with the loans now being due for repayment after 15 years.
"Banks raised couple of clarifications from the Reserve Bank of India...now State Bank of India, which is the leader of the consortium, will take those up with RBI," the source said.
"The banks will now start their internal process of formal approval."
Air India was in talks with banks to restructure its working capital debt of about $4 billion and is in the midst of implementing a turnaround plan with a hub-and-spoke route model focus, cut costs by redeploying staff and unload non-core real estate.
The civil aviation ministry will prepare a cabinet note on the turnaround plan in the next few days, the source said.
Saddled with a total debt of around $9 billion, Air India has posted a net loss before tax of Rs 70 billion for the year ended March, according to government estimates.
The government plans to infuse Rs 67.5 billion by way of equity in Air India over 10 years. It also plans to back Air India's aircraft buys worth Rs 170-180 billion over the next 10 years, the source added.
Earlier in November, a U.S. airline body sought to block $3.4 billion in pending taxpayer-backed loan guarantees for Air India to buy Boeing Co jetliners.
Air India had ordered up to 50 long-range Boeing jets worth about $6 billion in 2005.
The government would cover Rs 45 billion of Air India's accumulated losses, the source said.
He said the national carrier plans to sell and lease back Boeing 787 dreamliners to cut its debt.
A consortium of as many as 26 banks, including State Bank of India, IDBI and Bank of Baroda, have exposure to the carrier.
India's airlines are struggling with surging oil prices, high sales tax on jet fuel and below-the-belt pricing due to increased competition, leading to massive losses.
According to the Centre for Asia Pacific Aviation, Indian airlines are on course to post record losses of more than $2.5 billion for the year ending March 2012, with Air India likely to account for more than half of this.
Investors have become wary of an industry that, just a few years back, ordered hundreds of aircraft in an ambitious bet on the future.
Kingfisher Airlines, India's third largest, has cancelled scores of flights this month, as its net worth eroded, prompting it to approach lenders for a cushion to ease its debt burden.
Chiefs of beleaguered Indian private airlines on Saturday met Prime Minister Manmohan Singh seeking his intervention to help the carriers tide over the deep financial crisis and were assured that "legitimate" grievances would be considered, the Press Trust of India reported.