| Air India Limited | ||||||
| Rating reaffirmed at 'CRISIL A1+'; 'CRISIL AAA/Stable' reassigned to Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reassigned its ‘CRISIL AAA/Stable’ rating to the long-term bank facilities of Air India Limited (AIL). The short-term ratings have been reaffirmed at ‘CRISIL A1+’. The rating centrally factors in the strategic and economic importance of AIL to its ultimate parent, Tata Sons Pvt Ltd (Tata Sons; ‘CRISIL AAA/Stable/CRISIL A1+’) and the strong managerial linkages between these entities.
CRISIL Ratings understands that the Tata group will continue to maintain its majority shareholding (currently 100% owned) in AIL. The ratings factors in the group’s articulation of the intent to maintain majority shareholding and to assist AIL in servicing its obligations in full and timely manner. The rating considers the outstanding track record of need-based support extended by Tata Sons to its group companies.
The rating also reflects the established position of AIL in the airline industry and its strong financial flexibility on account of it being part of and managed by the Tata group. These strengths are partially offset by modest financial risk profile and susceptibility to risks inherent in the aviation business. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of AIL and its wholly owned subsidiary, Air India Express Ltd (AIEL; ‘CRISIL AAA/Stable/CRISIL A1+’) and joint venture, Air India SATS Airport Services Pvt Ltd (CRISIL A+/Stable/CRISIL A1). Also, CRISIL Ratings has applied its parent notch-up framework to factor in the support available to AIL from Tata Sons.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
AIL, including AIEL, is strategically and economically important to the Tata group. Tata Sons has invested Rs 2,700 crore towards purchase of AIL (including AIEL) through its wholly owned subsidiary, Talace Pvt Ltd (or Talace). The Tata group had presence in the aviation business through AirAsia India and Vistara. The acquisition of AIL has made the Tata group the second-largest aviation player in India.
Tata Sons provides strategic inputs and is engaged in the turnaround of AIL. Also, there is a common chairperson of the board of directors of both entities. Many seasoned professionals have been inducted in AIL from Tata group to turnaround the business.
Over the last few months, AIL has negotiated more favourable terms with vendors, leading to significant cost savings towards aviation turbine fuel (ATF), leasing, maintenance and insurance.
Tata Sons has an excellent track record of extending need-based support to subsidiaries and group companies, as seen in the case of Tata Teleservices Ltd (TTSL; ‘CRISIL AA-/Stable/CRISIL A1+’). CRISIL Ratings understands that Tata group will continue to hold majority stake in AIL (currently being wholly owned) and will assist the company in servicing its obligations in full and timely manner.
AIL is a leading Indian player in the international market, with market share of ~25% (includes AIEL), in terms of revenue passenger kilometer (RPKM), as of period of October to December 2021. In domestic operations, AIL’s market share was healthy at ~9.6% in terms of RPKM, in fiscal 2022. Besides, proposed consolidation of AirAsia India under Air India will further benefit the domestic market share.
Moreover, AIL is the only Indian airline that owns 43 wide-body aircrafts, resulting in the ability to fly non-stop, long-haul flights to North America, Europe, Australia and New Zealand. The company also has plans to open several regional hubs across the country to strengthen its network.
Weaknesses:
AIL reported continued operating losses (adjusted for leases) over the past few years because of various factors such as restrictions on travelling amid the Covid-19 pandemic, elevated ATF prices and large fixed cost, which weakened the financial risk profile.
As part of the deal of transfer of ownership of the company to Talace, there has been a significant improvement in the net-worth and reduction in debt of the company leading to AIL’s consolidated debt (including lease liabilities) reducing to ~Rs 24,456 crore as on March 31, 2022, from ~Rs 64,304 crore a year earlier. Nonetheless, debt protection metrics were subdued because of operating losses incurred in the past. CRISIL Ratings understand that the new management is undertaking various cost rationalisation measures and bringing in operational efficiency to aid profitability and improve cash accruals. Therefore, financial risk profile is likely to improve in the near to medium term, however, the same will continue to remain key monitorable.
ATF cost accounts for 35-40% of the total operating cost of players in the aviation industry. Furthermore, ATF price is directly linked to global crude prices and, therefore, is volatile. Players have limited ability to pass on price increase to passengers because of intense competition and likely adverse impact on passenger load factor (PLF). While significant rise in ATF price along with high fixed cost have impacted operating margin of the players currently but strengthening of the operating margin because of expected decline in ATF price in the near term will be a key monitorable. |
Liquidity: Superior AIL has high financial flexibility, supported by the strong parentage of Tata Sons. On consolidated basis, cash and equivalent stood at more than Rs 3,500 crore and unutilised limit at ~Rs 3,700 crore (of which ~Rs 1,500 crore is fungible with non-fund-based limits) as on date. Cash accrual is expected above Rs 2,000 crore per annum over the medium term. The company’s short-term debt of ~Rs 15,300 crore is due for repayment in fiscal 2023. However, owing to the strong financial flexibility and expected financial support from the Tata group, the company should be able to refinance its debt obligation. |
Outlook: Stable CRISIL Ratings believes the company will continue to benefit from strong parentage and need-based support available from Tata Sons. Moreover, business risk profile would also be supported by its established market position. |
Rating Sensitivity factors Downward factors
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About the Company AIL is a full-service airline operating in domestic and international markets. Its wholly owned subsidiary, AIEL, is a low-cost carrier airline that focusses on short-haul international operations, especially in the Middle East. AIL has a unique and attractive international footprint across North America, Europe and the Middle East. More than two-thirds of the revenue comes from the international market. |
About Tata Sons Tata Sons is the principal investment holding company of the Tata group. Around 66% of the share capital of Tata Sons is held by public charitable trusts. It holds core equity stakes in major group companies, including Tata Consultancy Services, Tata Steel Ltd, Tata Motors Ltd (‘CRISIL AA-/Stable/CRISIL A1+’), The Tata Power Company Ltd ('CRISIL AA/Stable/CRISIL A1+'), Tata Chemicals Ltd (‘CRISIL A1+’), Tata Investment Corporation Ltd ('CRISIL AAA/Stable'), Tata Teleservices Ltd (‘CRISIL AA-/Stable/CRISIL A1+’), Tata Capital Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), Tata AIA Life Insurance Company Ltd, Tata Industries Ltd (‘CRISIL A1+’), Tata Play Ltd ('CRISIL AA/Stable/CRISIL A1+') and Tata Projects Ltd ('CRISIL A1+'). Tata Sons is registered as a core investment company with the Reserve Bank of India. |
Key Financial indicators
NM: not meaningful because the figures are negative; above table reflects CRISIL Ratings adjusted figures |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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This Annexure has been updated on 30-Aug-22 in line with the lender-wise facility details as on 22-Jul-22 received from the rated entity.
Criteria Details
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