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Indian banks, which have USD6-6.6 billion in working capital debt with airlines are worried about their exposure to the sector and are reluctant to restructure loans (some of which have already been classified as non-performing assets) to carriers, including Air India. The deteriorating operating performance and the uncertain regulatory environment mean that there is limited interest from private equity funds. And placement of American and Global Depository Receipts is extremely challenging given the weakness in international capital markets. Most carriers have limited non-aircraft assets that can be monetised, with the exception of Air India which has substantial property interests.

Air India is one carrier which faces a relatively easier task with respect to funding, as the issue is within the control of the Government. Last week the Government approved a debt restructuring package, which included the conversion of INR74 billion (USD1.5 billion) of loans to government-guaranteed bonds, which should provide the carrier with some breathing space.However, there are few grounds for optimism about the airline's ability to make progress on the more challenging task of turning around the airline at an operational level. In the absence of addressing the underlying performance of Air India, the deteriorating financial losses of recent years are expected to continue. (CAPA)