News: Air Deccan signs deal with European banks

(PTI 14/10/2006) Bangalore - Air Deccan, the country's second largest airline, on Thursday announced it has signed a deal with two European banks to raise $100 million (Rs 450 crore) to help ensure its financial stability and insulate it from the "turbulence" in the domestic aviation industry. India's leading low cost airline, which had reported a loss of Rs 340 crore for the 15-month period ended June 30, has already received the first tranche under the deal with Investec Bank, UK, and HSH Nord Bank AG of Germany, Deccan Aviation Managing Director Capt Gopinath told reporters here. Under the deal, Rs 450 crore including an upfront payment would be payable in four tranches over 15 months to Air Deccan subject to compliance of certain financial covenants, Gopinath, who termed the deal "innovative", said. In turn, Air Deccan has assigned its future aircraft supply contract in favour of a Special Purpose Company, funded by the two international banks, which would carry the transaction, Director Finance Mohan Kumar said. The fund would be used for working capital and to develop the market in future, Kumar said. "This deal would go a long way in ensuring Air Deccan's financial stability and insulating us from the turbulence in the domestic aviation industry," Gopinath said. The first two larger tranches would be received in the first half of this fiscal and the remaining in the next financial year, Kumar said. Hit by fuel costs and addition of new aircraft and routes, Air Deccan with a 21.2 per cent market share, had reported revenues of Rs 1,352 crore from April 2005 to June 2006, with a loss of Rs 340 crore. A company statement described it as a "win-win" deal that would ensure flow of USD 400 million cash straight to the bottomline of Air Deccan and also open up a relationship with international banks, which would help funding of 60 aircraft ordered by it. Air Deccan has already placed orders with Airbus Industrie and IAE, a joint venture between Rolls Royce and Pratt and Whitney, for the supply of 60 Airbus A-320 aircraft with V2527A5 IAE Engines, to be delivered over the next seven years, when the market conditions were "soft". Pre-Delivery Payment (PDP) for the aircraft has been funded by Indian public sector banks, including SBI, PNB and UBI, for which security assignment has been provided. In the event of Air Deccan not taking delivery of the aircraft, SPC would have the right to market the aircraft and satisfy the PDP lenders and recover its investment, the statement said. The international banks, it said, had an investment to give them assured returns irrespective of the airline's performance and to syndicate financing of all 60 Airbus A-320 aircraft amounting to $2 billion. Answering a query, Kumar said the company would not have any stake in the SPC, which would be incorporated outside India backed by the two international banks. Gopinath said the airline would take delivery of two more Airbus aircraft and an ATR aircraft this month that would take its total fleet strength to 41.