New Delhi / Mumbai: India’s second largest airline by passengers carried, Kingfisher Airlines Ltd, has hired US-based aviation consulting firm Seabury Group Llc to help restructure its operations and reverse its decline, three Kingfisher officials said.
The carrier has a 66-aircraft fleet and 23.9% domestic passenger market share. But it is also laden with debt of Rs6,000 crore and is keen to raise at least $400 million (Rs1,864 crore).
Its hiring of the US consultancy comes amid a cyclical upswing in the domestic passenger market, which expanded by 8% year-on-year in 2009.
“Seabury has been hired to come in and assist us in sustaining long-term profitability by further strengthening the operational and financial performance of the company,” said Prakash Mirpuri, vice-president (corporate communications) at UB Group, parent company of Kingfisher Airlines, in an email reply to queries from Mint.
Mirpuri added that Kingfisher Airlines wanted to capitalize on the upturn using the best global practices.
Graphic by Ahmed Raza Khan; photo by Hemant Mishra/Mint
Seabury’s vice-president (marketing and communications) Paul Thibeau declined to comment, citing “current client work obligations”.
A restructuring will help Kingfisher increase its valuation besides optimizing fleet utilization and international route network, another Kingfisher official said on condition of anonymity as he is not authorized to speak to the media.
A team of senior Seabury executives is likely to start the clean-up at Kingfisher’s Mumbai headquarters this month, said a third official.
Kingfisher had hired consultancy firm Accenture Plc when it bought over the low-cost carrier Air Deccan in late 2007 and merged it with itself.
Since then, the airline’s share price has slipped around 82%—from a peak of Rs285.50 on 1 January 2008 to Rs51.80 on Saturday on the Bombay Stock Exchange.
The carrier’s losses, exacerbated by an increase in global crude prices, mounted from Rs408.91 crore in the 2007-08 fiscal year to Rs1,602 crore in 2008-09.
For April-December 2009, it made a loss of Rs1,075.32 crore.
In the three months ended December 2009, Kingfisher made a profit of Rs11 crore in its domestic operations at the operating level, compared with a loss of Rs122 crore in the year-ago period. Net loss for October-December 2009 stood at Rs419.96 crore.
Seabury has helped restructure a number of troubled airlines, such as US Airways Group Inc. (twice) and Air Canada, besides carrying out corporate restructuring and recapitalization assignments for America West Airlines Inc., Continental Airlines Inc. and Kitty Hawk Air Cargo Inc. In November 2009, it helped raise $525 million for US Airways.
“They have been involved with some boomerang bankruptcies,” said a US-based aviation analyst who asked not to be named as he deals with Seabury.
“Their track record is both successful and not-so-successful, with strengths in fleet finance and fleet restructuring, which means more in fixing how the company operates rather then fixing the balance sheets,” he added.
Sadeesh Raghavan, who retired recently as managing director, India domestic businesses, Accenture, said Kingfisher’s move was a sign of trouble.
“When you bring in an outsider, it does suggest there is a serious problem. If you can’t fix the problem you get some outsider or you sell off the business,” Raghavan said.
He also said Indian carriers needed to resolve an identity crisis: “Are they low-cost, or are they full service?” The confusion “makes them difficult to manage”.
Raghavan blamed this uncertainty for the fact that the industry saw more years of losses than profits.
“A part of the problem is that people don’t understand that the airline business is a service business,” he said. “Their mindset is that of a product business.”