NEW DELHI (TIP): The Ministry of Finance approved the unconditional and irrevocable Guarantee for Air India‘s NCD bonds, on October 9, for Indian Rs 7400 cr. The airline will now credit rate the NCD bond based on the guarantee issued by the government of India. The NCD will have a tenure of 19 years and priced at a spread over the applicable Government Security. The Government has capped the spread at 70 basis points. The proceeds of the NCD will be used to repay the Short term Working Capital facility availed by Air India from the 19 banks.

Air India will also be able to save on the interest cost by retiring this debt. The Banks will now have a reduced exposure to Air India after the said Short Term Loan is paid out by the airline. Air India is targeting to achieve this within 2-3 weeks from the date of receipt of the GOI guarantee.

Air India’s restructuring program is on track with the airline achieving the milestones set under the Turn Around Plan. It’s On Time Performance was nearly 86% in September 2012 and the Passenger Load Factor has shown an upward trend to 71.8%.

Air India is expected to tap Provident/pension funds, financial institutions, Employee Provident Fund Organization (EPFO) and other sources to raise the money.