Kingfisher weighs revival options as lenders meet

Executives say UB Group will bring in funds on its own and through a strategic international investor
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First Published: Sun, Nov 18 2012. 11 17 PM IST
Infusion of funds is critical for Kingfisher Airlines as bankers have insisted on the promoters pumping in money and the revival plan is vital for the carrier to get its licence back to fly again. Photo: Mint
Infusion of funds is critical for Kingfisher Airlines as bankers have insisted on the promoters pumping in money and the revival plan is vital for the carrier to get its licence back to fly again. Photo: Mint
Mumbai: The UB Group, the promoter of Kingfisher Airlines Ltd , is likely to infuse fresh funds into its grounded carrier even as a group of 17 banks that have lent to it will meet this week to discuss their options.
The airline is also expected to soon submit a comprehensive plan, including re-capitalization, to the aviation regulator so it can resume operations.
The UB Group will bring in funds on its own and through a strategic international investor, executives said, requesting anonymity. The group is in talks with more than one strategic international investor and the deal is likely to be signed shortly, one of them said.
The airline is likely to submit a fresh plan before the Directorate General of Civil Aviation to restart the airline by December with a minimum five planes, a Kingfisher Airlines official said on condition of anonymity. A carrier needs to fly at least five planes to hold a valid operating licence.
Sanjay Aggarwal, chief executive of Kingfisher Airlines, did not return calls.
“Kingfisher Airlines has informed that it is working on a comprehensive plan for revival,” said Arun Mishra, the director general of civil aviation, adding that there is no deadline for submitting a revival plan.
Infusion of funds is critical for Kingfisher Airlines as bankers have insisted on the promoters pumping in money and the revival plan is vital for the carrier to get its licence back to fly again. On 7 November, State Bank of India chairman Pratip Chaudhuri said the cash-strapped airline should raise at least $1 billion (around Rs.5,500 crore) of fresh capital. This was after the aviation regulator suspended the air operating licence of the Vijay Mallya-controlled airline in October.
“We had pumped in a lot of money and will do whatever is necessary to save the carrier. A part of funds will be infused by the promoter and remaining will come from an international strategic investor at the second stage,” said the UB Group executive cited earlier, without disclosing the details of the funds and the investor. “United Spirits had started negotiating with Diageo Plc in February, but the deal was culminated in November. It will take time for Kingfisher Airlines too (to close the deal),” he said.
On 9 November, Diageo, the world’s largest distiller by revenue, agreed to buy a majority stake in United Spirits Ltd, a UB Group firm, for Rs.11,166.5 crore, offering the Indian liquor tycoon a way out of mounting debt woes and gaining a strong presence in the local market.
This deal will not directly help Kingfisher Airlines. In a conference call on 9 November, Mallya said it would be “unfair for me to comment now what this deal means to Kingfisher”.
“I am doing what is best for my businesses,” Mallya had said. “I believe that I have done what is best for my spirits business. I will be doing what is best for Kingfisher Airlines separately, and I would be doing it fairly and squarely.”
The UB Group provided cash support of at least Rs.750 crore to the airline to meet its cash flow requirements, the airline had said in August.
Analysts tracking aviation stocks said the promoters are in a position to help Kingfisher Airlines indirectly after the Diageo deal. “Promoters would now indirectly help the carrier as they have no choice,” said an analyst who did not want to be named. “Clearing the salary dues of the airline employees is a positive sign.”
On Friday, Kingfisher Airlines had paid its employees salaries for May, according to two executives of the airline. March salaries were cleared on 25 October and that of April on 31 October.
According to a settlement reached between the management and the employees, salaries for the June-September period will be paid once the company is re-capitalized. From October onwards, the company will pay salaries a month late. This means the October salary will be paid by the last week of December.
The employees of Kingfisher Airlines, largely engineers and pilots, who had resorted to an indefinite strike starting 1 October, resumed work on 25 October.
Meanwhile, two bankers confirmed that the consortium of 17 lenders will meet this week to decide the future course of action. They too declined to be identified.
One of them declined to comment whether there is any deadline for the carrier to bring in capital. In the 9 November conference call, Mallya said he has not received any official communication about such a deadline.
The losses of Kingfisher Airlines widened to Rs.753.55 crore in the September quarter against Rs.468.66 crore for the same quarter of the previous year, owing to high finance costs, re-delivery of planes, and costs associated with the grounding of planes.
The airline has been grounded since 1 October and it admitted that it has incurred substantial losses and that its net worth has been eroded.
Kingfisher Airlines has not made a profit since its inception.
Consultancy firm Centre for Asia Pacific Aviation (Capa) has said that Kingfisher Airlines needs more than $1 billion to fully fund a business turnaround plan, mirroring Chaudhuri’s view.
The immediate requirements to actively re-launch the airline—as opposed to operating a skeleton fleet of five aircraft—have also increased from an earlier $600 million to closer to $700 million, Capa said.
Kingfisher Airlines has $2.5 billion of liabilities, of which $1.1 billion is borrowed from banks. The banks may be able to recover some of their loans, depending on the quality of the collateral in place, but this is likely to be a long-drawn process, Capa said in its 23 October report.
The remaining $1.4 billion of liabilities to vendors and employees is largely irrecoverable, except for some secured debt where airport operators and oil companies hold bank guarantees that could be invoked.
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First Published: Sun, Nov 18 2012. 11 17 PM IST
More Topics: Kingfisher | UB | funds | debt |
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