Air India faces turbulent flight to survival

Air India, a relic of state ownership threatened by losses, bloated costs and more nimble rivals, needs to secure a massive debt and operational overhaul if it is to survive in a market growing at 20 percent a year.

The airline has not posted a profit since merging with former duopoly partner Indian Airlines in 2007 and relies on handouts from the government to survive.

It is behind on its payroll obligations and was forced one day last month to cancel a handful of flights because it had not paid its fuel bills.

Air India and 26 banks are in talks to restructure $4 billion of working capital debt in a deal that would force lenders including State Bank of India to accept equity in the carrier and cut lending rates to about 8 percent from 11-13 percent, saving it $133 million in interest costs.

Banks are not happy about the plan but may have no choice.

"There is no other option for banks but to go for it. But what they are asking for is not reasonable," said a banker involved in the ongoing negotiations. "If it is reasonable, we will approve it," he said.

Text: Reuters

AP Images

Image: An Air India ticketing staff member sits at a closed counter in front of the Air India mascot at their ticket office at the domestic airport in Mumbai on April 27, 2011.