The Hindu Business Line : Deccan Aviation in deal with 2 European banks

`In case the airline does not take delivery of the aircraft, the SPC will have the right to market the aircraft and share the proceeds with the bankers.'

Banglaore , Oct. 13

Deccan Aviation which runs Air Deccan on Friday said it has signed a `unique financial structuring' deal with two European banks to raise $100 million to fund its cash flow needs.

The Air Deccan Managing Director, Capt G.R. Gopinath, told newspersons on Friday that in return of these funds, it has assigned the purchase of its 60 Airbus aircraft to a special purpose company (SPC), Southwest Trading Ltd, funded by the two European banks, Investec Bank, UK and HSH Nord Bank AG, Germany. He said that the funds will be payable to the airline in four tranches over a period of 15 months.

The first tranche of $30 million has already been received. The last of the 60 aircraft will be delivered by 2013.

The airline's Chief Financial Officer, Mr Mohan Kumar, said these funds will add $100 million (Rs 450 crore) to the bottomline. Terming it as a unique deal, Mr Mohan Kumar said its bankers, State Bank of India, Punjab National Bank and United Bank of India which funds the pre-delivery payment for aircraft purchase too will benefit from the deal. He said in case the airline does not take delivery of the aircraft, the SPC will have the right to market the aircraft and share the proceeds with the bankers. The release of further tranches will be tied to compliance of certain financial covenants and "related to balance sheet numbers," Mr Mohan Kumar said.

Finance

He said while the airline which posted a loss of Rs 340 crore during the 15-month period ending June, gets to add $100 million cash flow straight to its bottomline, it also opens up a relationship with the two European banks which will help funding of the ordered aircraft. These banks will now have an investment to give them assured returns irrespective of the airline's performance and also an opportunity to syndicate financing of all 60 Airbus aircraft amounting to $2 billion.

Mr Mohan Kumar said if the airline had entered into a standard financial transaction such as raising funds through debt, it would have lead to additional burden on its cash flow. Hence, the airline decided to go in for such a financial structuring exercise.

Out of the 60 aircraft ordered, two of them will be added this month. One more ATR will also join the fleet, which is currently at 38. The airline currently has a market share of 21.2 per cent, which makes it the second largest airline in the country.

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