Biman caught in 'state guarantee' tangle over foreign credit

FE Team | Published: May 11, 2009 00:00:00 | Updated: February 01, 2018 00:00:00

A Z M Anas
Biman's move to modernise its fleet hits hurdles as the national airliner has failed to secure "unconditioned" loans to finance purchase of new Boeing aircraft, officials said recently.
They said local and foreign lenders including Citibank NA have asked Biman Bangladesh Airlines Ltd to obtain "sovereign guarantee" from the government to be eligible for credits required to meet the US$1.26 billion payment obligations. The state carrier needs to pay for 10 new Boeing planes it ordered from the Chicago-based global aviation goliath.
"Biman has negotiated with many local and foreign banks for the loan. But talks were not successful," Biman's governing body chairman Air Marshall (Retd.) Jamal Uddin Ahmed told The Financial Express.
"No banks are willing to give money without sovereign guarantee. And we have asked Biman officials to write to the Civil Aviation Ministry for that," he added.
His comments typify a common phenomenon: Global lenders are averse to lend to any "risky" organisation in the developing world, even if Biman is on a path to profit.
The carrier, which swung to "surprise" profits in the last financial year, desperately needs Tk 2.24 billion by July to make part of the pre-delivery payment.
"Our first payment is due in July. But the possibility of arranging money within this time is getting increasingly slim," Mr Ahmed, a former air force official, said.
American banking group Citibank NA, which initially handed out a proposal to Biman, has now backed off, insisting on the gurantee from the government, he added. No Citibank NA official was, however, immediately available for comments.
One Biman official said that Biman could pay at best Tk 1.0 billion from its own coffer for the forthcoming payment, leaving a shortfall of Tk 1.24 billion.
Last fiscal, the carrier made a profit of Tk 190 million after a combined loss of $220 million in the two previous fiscal years.
In the fiscal 2006, Biman racked up a record loss of $120 million.
Under pressure from the huge losses, Biman sent about 2,000 workers into voluntary retirement in 2007 and suspended eight loss-making international flights. It also cut four domestic routes under its restructuring drive.
Biman officials said the authority is preparing a letter to the Civil Aviation Ministry seeking the state guarantee for the multi-billion-dollar credit.
Civil Aviation secretary Hedayetullah Al Mamun, who is also a member of Biman, said he expects to get such a letter from the airline.
"Our vision is to make Biman one of the largest airlines in South Asia according to the Vision 2021. We're moving ahead with that plan," Mr Mamun said.
Burdened with an aging, fuel-inefficient fleet, Biman in last June signed a deal with Boeing to buy four 777-300ERs and four 787-8s with an option to procure four more.
Boeing said it would deliver first four 777-300ERs in early 2013 while the rest would be supplied in phases through 2020.
The purchase order by Biman, which became a public limited company in 2007, represents the largest capital investment in the country's history.
The carrier has already paid $1.54 million in booking fees from its own coffer.
Officials said about 85 per cent of the required fund would be guaranteed by the US Export Import Bank.
Biman flies to 18 cities around the world, and has rights to fly to 42 more with 13 aircraft aged between 20 and 30 years.
Biman, once the leader, lost out to foreign carriers, notably a few Persian Gulf-based airlines, with the state-owned carrier today controlling less than 20 per cent of the country's rapidly-growing aviation sector.