Mumbai: Cash-strapped Kingfisher Airlines Ltdis considering uninstalling its in-flight entertainment system, which it has touted in the past as a unique selling proposition to attract passengers, as it launches a cost-cutting drive and reconfigures some of its aircraft, two persons familiar with the development said on condition of anonymity.
It is not clear if Kingfisher’s first-class section will have in-flight entertainment facilities after the reconfiguration.
A spokesperson for Kingfisher Airlines said, “At this point in time, Kingfisher Airlines is not considering any such change.”
Kingfisher is trying to lower costs, seeking ways to reduce interest costs on its debt and rationalizing its fleet among other measures. Its in-flight entertainment facilities include a personal screen at every seat with five video and 10 audio channels.
Un-installing the facilities will save costs on content and maintaining the system, one of the persons mentioned above said. The savings, though, may not be significant, he added.
“Kingfisher Airlines is trying its best to reduce its costs. But it will take at least six months to get results of these measures,” said Sharan Lillaney, an analyst at domestic broking Angel Broking Ltd.
Kingfisher has raised a Rs 400-crore loan from Sicom Ltd, a non-banking financial company run by the Maharashtra government, in exchange for a deposit offered by group affiliate Shaw Wallace and Co. Ltd, the Economic Times reported on Wednesday.
Sicom has accepted the deposit for one year at an interest rate of 10%, against which it has given the loan at 12% for one year, Sicom chairman R.M. Premkumar said over the phone on Wednesday. UB Group, which controls both Kingfisher Airlines and Shaw Wallace, may have chosen this route because there are restrictions on companies lending directly to affiliates, Premkumar said.
UB Group chairman Vijay Mallya said on Tuesday he is seeking Rs 800 crore of working capital for Kingfisher Airlines, which has been forced to cancel around 50 flights a day as it battles a cash crunch. Mallya said the money is needed as jet fuel prices are rising.
“Possibly, the UB group (has) taken this route to avoid (Shaw Wallace) becoming a lender of last priority,” a senior corporate financial consultant, who did not want to be identified, said about the loan from Sicom.
“If a promoter group company lends to another group company, then it becomes a lender of last priority, which means had Shaw Wallace given this money it would have been repaid last after all other creditors of Kingfisher Airlines,” the consultant added. In other words, the group’s risk perception about Kingfisher Airlines continues to be very high, he added.
According to section 372 of the Companies Act, 1957, no company can invest or lend to another group company more than 60% of its net worth. An exception to this rule is bank deposits, said the consultant.
Meanwhile, a day after Mallya spoke about his plans to revive the fortunes of his airline and said it was too early to write it off, Kingfisher Airlines shares rose 14.42% to close at Rs 25 on Wednesday on the Bombay Stock Exchange, while the benchmark Sensex lost 0.63% to 16,775.87 points