New Delhi, April 8: Air India’s bankers have agreed to explore the possibility of recasting its Rs 40,000-crore debt, including converting short-term debt into long-term loans.

At a three-hour long meeting of the airline management with bank chiefs, it was decided that bankers would form a small group within the consortium of 20 lenders to consider the restructuring proposal.

Earlier, bankers had agreed to recast Kingfisher’s debt by converting it into equity. AI’s financial restructuring plans call for equity infusion by its owners — the government — besides converting all short-term high-cost loans into cheaper long-term loans.

Sources said, “Air India, too, may move towards converting some of the long-term loans into equity.” The airline is saddled with a debt of about Rs 40,000 crore of which Rs 18,000 crore is working capital loan taken from a consortium of banks, while the balance Rs 22,000 crore is for the payment of new aircraft.

The airline’s management, led by chairman Arvind Jadhav, made a detailed presentation of the recast plan to bank representatives, including Syndicate Bank CMD Basant Seth.

AI officials said the airline had set a target of enhancing revenues by Rs 5,000 crore and slashing costs by Rs 4,000 crore per annum.

A large chunk of the cost cut will come from bringing down short-term interest rates from an average of 12-14 per cent to about 6-9 per cent.