Air India (AI, Mumbai Int'l) has launched a tender seeking short-term loans amounting to INR61.5 billion rupees (USD826 million) to put towards the refinancing of aircraft, it said in a tender document aimed at domestic lenders on November 11.

The debt-laden flag carrier explained that the proceeds of the government-guaranteed loan would refinance foreign currency bridge loans previously taken to buy six B787-8s and one B777-300(ER). It offered B787s and B777s as collateral for the loan, which will be repaid after one year, and issued a deadline for bids of November 20.

Air India’s current fleet of 124 aircraft includes twenty-seven B787-8s, at least six of which are owned, and thirteen B777-300(ER)s, all of which are owned, the ch-aviation fleets advanced module shows. It also operates three owned B777-200(LR)s.

The plan is to raise the total amount in seven tranches, which would consist of three tranches of INR7.9 billion (USD106.5 million) each, three of INR9.25 billion (USD124.5 million) each, and one of INR10.05 billion (USD135 million), according to the bid document.

The interest rate payable by the airline will be linked to the Marginal Cost of Funds-Based (MCLR) and Government Securities (G-SEC) rates “with reasonable spread as margin.” Typically, banks cannot lend at a rate lower than the MCLR.

This new effort to raise money was announced two weeks after the ongoing coronavirus pandemic forced India’s government to push back the deadline for submitting bids to buy a 100% stake in Air India to December 14, in a ninth correction to the original memorandum inviting Expressions of Interest (EOIs) in the sale.

The government has turned down the carrier’s request for an equity infusion, instead agreeing to stand as a sovereign guarantor for the airline’s debts. As previously reported, in its ninth “corrigendum” it also revamped the terms for selling Air India, which will now be offered according to its Enterprise Value (EV), and bidders can quote the level of debt they are comfortable with.

The government has decided that whatever EV a bidder quotes, it will have to provide a minimum of 15% of that value in cash to the government.

According to the Hindu Business Line newspaper, several possible bidders raised queries about Clause 6 of the memorandum before the passing of a November 12 deadline to do so via transaction advisors Ernst & Young (EY). Clause 6 relates to the proposed reallocation of debt and the new EV-based bidding.

One party recommended that the focus should be on the cash required by the ailing company to see it through this challenging period and not on taking any money out of the business.

“We, therefore, believe the 85%/15% condition is misguided and contrary to the government’s aim [...] The entire EV should be left in the company in the form of assumed debt,” the would-be bidder said.

Other possible bidders said that the eventual buyer would have to invest significant sums in upgrading the fleet, bring into service aircraft not currently active, pay lessors, and introduce voluntary retirement schemes for employees.