The Hindu Business Line : Air India gets sovereign guarantee for 68 Boeing purchase

The Ministry of Finance has extended the sovereign guarantee to the 68 Boeing aircraft being purchased by Air India. Official sources told Business Line that the paper work for extending the sovereign guarantee for the deal was clea red by the Government in the last few days.

“The sovereign guarantee for Air India covers almost 70 per cent of the $7-billion deal. Therefore, the Government was being careful before extending the guarantee. Now with the guarantee letter in hand, the airline would be in a position to raise monies at more competitive rates,” a senior Government official told Business Line.

Air India will now be able to negotiate with the US Exim bank for picking up funds at a lower rate than it has contracted at present for delivery of the aircraft. Currently, the airline is raising funds at Libor plus 150 basis points.

Air India has received over 10 of the 68 aircraft. “The financing used to purchase those aircraft will now be swapped at a lower rate than what was contracted earlier. This should lead to a substantial savings for the airline although the entire quantum of the saving is yet to be finalised,” officials said.

The decision to offer a sovereign guarantee to Air India for the deal was cleared in December 2005, when the empowered Group of Ministers cleared the purchase proposal. Air India is to acquire the 68 aircraft at an estimated cost of Rs 30,000 crore. The acquisition plan includes inducting 18 Boeing 737-800, 27 Boeing 787, 8 B 777-200 Long Range and 15 B777-300 Extended Range aircraft.