The shifting of this debt to AIAHAL from the carrier was one of the steps taken to make the airline attractive to potential buyers.

“The AIAHL will negotiate for restructuring and refinancing of the costly debt,” an official said on the condition of anonymity.

The move could help reduce the interest burden on AIAHL by about Rs 300-400 crore per annum, as some Rs 15,000 crore of high-cost debt could be recast. However, it is not obligatory on banks to cut the interest rate.

A favourable deal from the lenders will hinge on the Centre’s persuasive powers and the discretion of the bank managements.

There are over a dozen lenders of working capital to Air India, including State Bank of India.

As part of the strategic disinvestment plan of Air India and Air India Express, the Cabinet on February 28 gave its approval for the AIAHL for warehousing of AI’s accumulated working capital loan not backed by any asset along with four subsidiaries (Air India Air Transport Services, Airline Allied Services, Air India Engineering Services and Hotel Corporation of India. Non-core assets such as paintings and artefacts and other non-operational assets of AI have also been kept with the SPV with a mandate to monetise them. As per the audited accounts of 2017-18, the total debt of AI was Rs 55,308.52 crore.

The board of directors of the SPV, incorporated in January 2018, includes CMD of AI and departmental joint secretaries of civil aviation, expenditure, economic affairs, DIPAM and director(finance) AI.

The interim Budget for 2019-20 has allocated Rs 2,600 crore to service the debt housed in the SPV. The proceeds from sale of non-core assets (worth Rs 5,000 crore) and subsidiaries would be used to repay the loan. Also, the proceeds from sale of AI and AI Express, when materialises, would be used to repay the loan.

The strategic disinvestment process for the carrier is likely to start afresh once a new government is formed after the elections next month. In June 2018, the government called off the proposed sale of a 76% stake in AI after no buyer showed interest.

AI losses are expected to widen in 2018-19 due to increase in aviation fuel costs. It made a loss of `3,500 crore in the first six months of 2018-19. Its losses stood at `6,453 crore in 2016-17 and `5,348 crore in 2017-18.