Air India: Maharaja in Debt Trap

By Krishnamurthy Vaidya Nathan, Catherine Xavier
Harvard Business Publishing | January 2018

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cb.hbsp.harvard.edu/cbmp/product/ISB101-PDF-ENG

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Vaidya Nathan, Krishnamurthy., Xavier, Catherine. Air India: Maharaja in Debt Trap Harvard Business Publishing cb.hbsp.harvard.edu/cbmp/product/ISB101-PDF-ENG.

Harvard Business Publishing, 2018

Abstract

In the year 2016, after more than a decade of loss-making, Air India posted an operating profit of INR 1.05 billion. Over the years, Air India's greatest problem has been its crippling debt. At the end of fiscal 2014-15, the airline had a total debt of INR 513.67 billion. While the airline managed to phase out more than INR 50 billion of debt from its books during the year 2015-16, its total debt still stood at INR 460 billion. In order to facilitate the revival of Air India, Ashwani Lohani, known as the "turnaround man", was appointed Chairman and Managing Director of Air India. As Lohani piloted Air India towards revival, efforts were being made to convert INR 100 billion of Air India's debt into equity, a move that would substantially reduce its interest burden and give banks a major say in its functioning. Lohani was in talks with banks and investors who could play a critical role in Air India's debt restructuring. Lohani mulled over the various options related to debt restructuring. It remained to be seen whether Lohani's image as the "turnaround man" coupled with Air India's operating profits would increase investor confidence and help Air India deal with its debt burden. While Air India's modest operating profit was good news, it remained to be seen if it could provide relief to the sick airline's actual financials. It also remained to be seen whether Lohani's attempts at improving employee relations with the organization and the operational changes he was introducing to Air India could help turn the tide for the ailing airline. As of July, 2017, two questions remained: Had Air India really turned the corner under Lohani's leadership? Could Air India's short-term progress help it to overcome the huge debt that had become the "elephant in the room"?

K Vaidya Nathan is an Assistant Professor of Finance (Practice) at the Indian School of Business (ISB). Prior to joining ISB, he was a resident faculty member at the School of Business, University of Connecticut, where he continues to hold a Visiting Faculty position. Before becoming an academic, he worked as an investment banker with JPMorgan Chase Bank in Hong Kong, New York, and Singapore, and has advised financial institutions and corporates in the Asia-Pacific region on hedging and risk management. He specialises in credit derivative, foreign exchange, and fixed income products. He has also advised corporates in the telecom, media, and technology sectors on mergers and acquisitions, divestiture, acquisition financing, capital structure advisory, alternative investments, and debt restructuring. He is also a consultant with the World Bank.

He holds a BTech in Electrical Engineering from the Indian Institute of Technology (IIT) Kanpur and an MBA from the Indian Institute of Management (IIM), Ahmedabad. He is a Chartered Financial Analyst (CFA), certified by the CFA Institute, Charlottesville, and a Financial Risk Manager (FRM), certified by the Global Association for Risk Professionals (GARP), New York. He earned a PhD in Finance and completed a postdoctoral fellowship at the Leavey School of Business, Santa Clara University.

Professor Vaidya Nathan is a regular columnist with the Financial Express (http://archive.financialexpress.com/columnist/k/1). He is the author of two books: Credit Risk Management for Indian Banks (Sage Publications, London) and Credit Derivatives (McGrawHill Education, New York).

He received the Most Outstanding Faculty Award at the University of Connecticut School of Business in 2014 and the ISB Alumni Endowment Research Fellow in 2019. He has previously served as Associate Dean (RCI Programmes) at ISB and was appointed Chairman of the LOCF Committee for Economics by the University Grants Commission (UGC). He is currently Faculty Director-PGP Finance.

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