Air India secured a USD 120 million loan from SMBC, a Japanese lender affiliated with the Tata Group, to facilitate the acquisition of an Airbus A350-900 aircraft.
Japan’s SMBC announced on Wednesday that Air India, owned by the Tata Group, has secured a $120 million loan for the acquisition of an Airbus A350-900. The transaction, facilitated through SMBC’s Singapore branch, is a secured debt facility, with AI Fleet Services, based in GIFT City, serving as the borrower. The A350-900 aircraft was successfully delivered in October 2023, as per an official statement.
SMBC Group is delighted to strengthen its longstanding ties with Tata Group through this transaction,” remarked Hiroyuki Mesaki, the lender’s country head for India. He highlighted that this marks the bank’s inaugural venture into aircraft finance leasing.
Nipun Aggarwal, Chief Commercial and Transformation Officer at Air India, emphasized that the aircraft is part of the initial deliveries from the company’s substantial aircraft order earlier in the year. Aggarwal also underscored the significance of this transaction in expanding their aircraft financing endeavors via GIFT City, India’s first International Financial Services Centre (IFSC).
According to the SMBC statement, India holds the position of being the fifth-largest aviation market globally, with anticipated continued growth fueled by factors such as the rise of a burgeoning middle class eager to explore travel opportunities.
Tata Group‘s Aircraft Fleet Expansion: SMBC’s Secured Debt Facility for Air India
SMBC clarified that this is a secured debt facility facilitated through its Singapore branch, with Air India’s GIFT City-based arm, AI Fleet Services, acting as the borrower. This acquisition aligns with the expansive initiative by the Tatas to procure a total of 470 aircraft from both Boeing and Airbus, where Air India has additionally contributed equity. According to the SMBC statement, India holds the position as the world’s fifth-largest aviation market, with the sector anticipated to experience substantial growth.
This trajectory is attributed to factors such as the emergence of a sizable and expanding middle-class population, demonstrating a heightened willingness to engage in travel. Reports indicate that the Airbus A350-900 aircraft is priced above USD 300 million. Hiroyuki Mesaki, the country head for India at SMBC Group, expressed satisfaction in expanding the long-established relationship with Tata Group through this deal. He highlighted that this marks the bank’s inaugural transaction for aircraft finance lease.
The Boeing order consists of 190 B737 MAXes, 20 B787s, and 10 B777s aircraft, while the Airbus order includes 210 A320 family and 40 A350 planes. Notably, the A350, B777, and B787 are wide-body aircraft equipped with larger fuel tanks. Nipun Aggarwal, Chief Commercial and Transformation Officer at Air India, highlighted that the aircraft in question is part of the initial deliveries from the company’s extensive aircraft order announced earlier in the year.
Air India’s Financial Reshaping and Strategic Moves Under Tata Group Ownership
Earlier funding endeavors saw Air India secure Rs 14,000 crore from State Bank of India and Bank of Baroda through a combination of fresh loans and the refinance of existing debt. This funding included Rs 12,500 crore for loan refinancing and Rs 1,500 crore obtained through the Emergency Credit Line Guarantee Scheme (ECLGS) during the pandemic. Additional reports indicated ongoing discussions with commercial banks for a Rs 3,000-crore loan, earmarked for down payments to lessors under sale-and-leaseback (SLB) agreements.
Tata Sons completed the acquisition of a 100 per cent stake in the financially struggling Air India on January 27, 2022, through its fully owned subsidiary, Talace Private Limited. Subsequently, it was announced that Air India and Vistara would undergo a merger, expected to be finalized by March 2024, with Singapore Airlines holding a 25 per cent stake in the consolidated entity. In addition to this, the merger of Air India Express and AirAsia India is underway to form a single low-cost carrier airline. Following Tata Group’s takeover in January 2022, orders were placed for 470 aircraft from Airbus and Boeing, totaling $70 billion.
