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Ashwini Phadnis

"Seeking sovereign guarantee is a thing of the past. The lack of sovereign guarantee does not impact the cost of borrowing for an airline. The European Credit Agency (ECA) is likely to cover about 85 per cent of the loan," sources said.

NEW DELHI, June 13

THE European aircraft manufacturing major, Airbus Industrie, is unlikely to insist on a sovereign guarantee from the Central Government at the time of conclusion of the 43-aircraft fleet acquisition programme of Indian Airlines (IA).

Industry sources told Business Line that in the recent past, most of the aircraft deals that Airbus successfully negotiated with State-owned airlines have been without sovereign guarantees from the Governments of countries purchasing the aircraft.

"Seeking sovereign guarantee is a thing of the past. The lack of sovereign guarantee does not impact the cost of borrowing for an airline. The European Credit Agency (ECA) is likely to cover about 85 per cent of the loan. The loan is likely to be guaranteed by the Governments of France, Germany and Britain. In the unlikely event of any default in the loan, it is the ECA which will have to take action which, in a way, will ensure that there will be least amount of risk for the banking community," industry observers said.

Besides, the good track record of IA, which has never defaulted in payments for the 30 Airbus aircraft that it has purchased or those leased, is also likely to see little or no pressure being put for sovereign guarantees being made available for the deal to go through. Sources indicated that with ECA covering 85 per cent of the loan amount and IA likely to put down some amount upfront in cash for the aircraft that it intends to purchase, the unsecured loan amount that will have to be taken from banks is likely to be very small.

"These days, financing are done on commercial basis rather than on Government support. This, in a way, does away with the need to have any sovereign guarantees at all," industry observers pointed out.

The IA fleet acquisition plan was approved by the pre-Public Investment Board (pre-PIB) meet on June 13 this year. At the meeting, the Finance Ministry is said to have raised the issue of not being able to provide guarantees. Sources told Business Line after the meeting that the issue of guarantees was not something to be discussed at a pre-PIB meet.

"This is an issue which is decided at a level which can go up to the Prime Minister," sources said.

In March last year, the IA board had approved a proposal to purchase 43 Airbus aircraft, including AirbusA-320, A-321 and A-319, at an estimated cost of Rs 10,089 crore.

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