Air India is calling for bids from banks and financial institutions to fund the acquisition of the second set of 10 Boeings that will be delivered to it between December 2007 and March 2009, the airline said in a statement.
Financiers will also bid for the pre-delivery payments of 14 aircraft and spare engines that the airline will take deliveries of between 2008 and 2009, amounting to $464 million. In all, Air India is seeking funding for $2 billion from financiers.
This includes bids for an US Exim Bank-guaranteed facility for $1.06 billion and a commercial facility of $ 181.85 million for 10 aircraft, comprising a combination of Boeing 777-200 LRs, Boeing 777-300 ERs and Boeing 787.
Typically, agencies like the US Exim bank provide funding for up to 85 per cent of the cost of the aircraft at low interest rates. Based on this, airlines borrow the remaining from commercial banks.
Air India has invited bids with three options: with EXIM and government guarantee, with EXIM guarantee but without government guarantee; and thirdly, without any guarantees, where the asset acts as a security. For, the guarantees come at a cost—an EXIM guarantee can cost 3 per cent in exposure fee upfront.
‘‘We are looking for innovative financing packages without a sovereign guarantee which may involve sale and leaseback arrangements. We will settle for the least-cost option,’’ said S Venkat, executive director (finance), Air India.
This is not the first time it is trying to borrow without a sovereign guarantee—in 1996, Air India had borrowed $300 million to acquire two Boeing 747-400 without a guarantee. Experts say it’s a sizeable deal, which could see stiff competition from lenders like Barclays, Standard Chartered, Citibank, Deutsche Bank, Calyon and Credit Suisse, all of whom participate in aircraft financing.
The airline has invited bids for financing pre-delivery payments of 14 planes, amounting to USD 467.25 million. Air India has also called for bids to finance 5 Boeing 737-800 planes and 3 spare engines that will be delivered between January 2008 and January 2009. This amounts to USD 200 million for the 85 per cent component and commercial loans of USD 43.8 million
Air India had earlier invited bids worth USD 1.4 billion for financing the first batch of 17 aircraft for which US EXIM Bank has issued a firm commitment. The airline is in the final stages of closing this deal, Air India said in the statement.