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Kingfisher may lease more planes, eye PEs for funds

Kingfisher may lease more planes, eye PEs for funds
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First Published: Mon, Jun 13 2011. 12 16 AM IST
Updated: Mon, Jun 13 2011. 12 16 AM IST
Mumbai: Beleaguered carrier Kingfisher Airlines Ltd is looking at alternative funding routes such as private equity (PE), leasing more planes and consolidating its offices into a single centre at Mumbai airport to reduce rent.
“We are looking at various alternatives for raising funds other than GDRs (global depository receipts). Certainly, PE is one option. I cannot divulge details at this point,” an airline executive said, requesting anonymity.
Also see | Kingfisher’s Debt Statistics (PDF)
The Mumbai-based airline, India’s second largest by passengers carried, will also look at savings through fresh negotiations of several contracts with aircraft lessors, airport operators and oil marketing companies, and cut cost by utilizing in-house expertise for aircraft maintenance, according to an investor presentation. Mint has reviewed the presentation.
The airline has reduced debt by about 20% to Rs6,007.30 crore in April from Rs7,651.12 crore a year ago following a debt recast. The presentation said the debt recast has been completed, resulting in lower interest rates and moratorium on repayment of loans, without divulging specific details.
Since its inception in 2005, Kingfisher Airlines never made a profit. It’s net loss was Rs1,027 crore for the financial year ended 31 March on a total income of Rs6,496 crore, against a net loss of Rs1,647 crore on a total income of Rs5,271 crore in 2009-10.
Following the debt recast plan, a consortium of 13 banks converted a Rs750 crore loan into 23.37% equity in the airline in April, valuing its shares at a 61.60% premium over the price prevailing that day.
The airline has not been successful in issuing GDRs to raise $300 million that it has been planning for sometime. Recently, Kingfisher Airlines chairman Vijay Mallya said in Singapore that his firm will rework its plan to sell GDRs as investors asked the airline to come back with a revised plan.
“It is sensible to weigh alternative options other than GDRs. PE could be one good option. Issuance of GDRs may not fetch heavy premium for the airline, considering current market conditions, and may pose issues such as promoters’ holding going down drastically and foreign direct investment restrictions,” said Rashesh Shah, an analyst at domestic brokerage ICICI Securities.
“On the short-term, Kingfisher Airlines is going to struggle as it cannot control the operating cost such as fuel. But once it joins oneworld alliance, the airline could leverage its international operations,” he added.
Kingfisher Airlines plans to join the oneworld alliance, a global grouping of carriers, by this year-end, giving it better access to the US, European and Asia-Pacific markets.
The Kingfisher Airlines executive cited earlier said his airline is consolidating five to six offices in the city into one single building.
“The process will complete in next two to four weeks,” he said. “This will not only reduce cost but also bring in synergies in terms of operations.”
The executive also said out of 13 grounded planes, 11 have started flying as per plan. “The remaining two will start flying in six to eight weeks. Also, we will look at leasing more planes to participate in the demand growth what India is witnessing now,” he said.
An airline consultant, who is not advising Kingfisher Airlines and who spoke on condition of anonymity, said it is tough for the airline to come out of the crisis. “Kingfisher Airlines has defaulted to several of its vendors. There is no respite for jet fuel prices. Mere debt recast alone will not help,” he said. “It needs to focus every single cost element without compromising on its service.”
Kingfisher Airlines is not the only airline to aggressively cut costs in a bid to stay afloat. Rival airline Jet Airways (India) Ltd, too, is renegotiating every contract in the context of high fuel cost. These include lighter seats and other equipment on board to reduce weight.
Air India is also in the process of tightening costs and restructuring debt after accumulating Rs13,000 crore in losses.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Mon, Jun 13 2011. 12 16 AM IST
More Topics: Kingfisher | Vijay Mallya | Debt | Recast | Jet Airways |