Mumbai: The country’s largest private carrier by passengers carried, Kingfisher Airlines Ltd, is set to get an immediate relief as a group of banks have agreed to lend Rs2,000 crore to the cash-starved airline. India’s largest lender, State Bank of India (SBI), has already disbursed Rs900 crore, while Bank of Baroda and a few other banks are in the process of disbursing the rest of the amount.
Good credit: Vijay Mallya. Harikrishna Katragadda / Mint
In mid-2008, Kingfisher Airlines had received a Rs1,000 crore loan from private lender ICICI Bank Ltd.
This time, the airline’s chairman, Vijay Mallya, has extended a personal guarantee to secure the loan, said a senior banker closely associated with the deal. He did not want to be named as banks are not supposed to disclose details of specific transactions.
A personal guarantee is a promise made by an entrepreneur to personally repay the company’s debts in the event of default. Instances of banks asking for personal guarantees from promoters are not rare. But normally, such guarantees have been asked from not-so-well-known promoters, particularly of small and medium enterprises.
“Out of Rs2,000 crore, we have got half of the money. The remaining is on its way,” said a senior Kingfisher Airlines executive, who did not want to be identified. Mint could not independently verify the details of the transaction with all banks involved.
Kingfisher Airlines has been struggling to get funds from banks, which are not keen on lending to companies in India’s ailing aviation sector that has witnessed a 10% slump in passenger traffic in 2008-09.
In December, rival carrier Jet Airways (India) Ltd had raised Rs1,250 crore from Punjab National Bank and Indian Overseas Bank to meet its working capital requirements.
For raising the loan, Jet Airways had pledged its international ticket sales, which means its international tickets are being used to pay the debt. Jet Airways flies to top international destinations such as the US, Europe as well as South-East Asia and West Asia.
Another full service airline, state-run National Aviation Co. of India Ltd (Nacil) that runs Air India, is also looking to raise $1 billion (Rs4,680 crore) to fund its expansion plan.
“(Banks find) it is comfortable to lend to a state-run company since there is a guarantee from the government. You tend to demand more guarantees from private carriers,” said an executive at an international bank that is considering to lend to airlines and airports in India, who did not want to be identified.
In a May report, the Centre for Asia Pacific Aviation (Capa), an aviation consulting firm, said the market debt of the three leading airline groups—Nacil, Jet Airways and Kingfisher Airlines—stood at $8 billion and could reach $10 billion by the end of the current fiscal year, equivalent to about 1% of India’s gross domestic product.
For Kingfisher, mired in controversies for not paying oil companies for jet fuel and airports for various services, the Rs2,000 crore will bring immediate relief.
The fund infusion also assumes significance as Indian and overseas bankers are averse to lending to domestic airlines, which are expected to post a combined loss of $2 billion in 2008-09.
According to the International Air Transport Association, the combined net losses of airlines globally for 2008 were $8.5 billion. India accounted for close to one-fourth of the amount although its share in global air traffic is 2%.
“This fund infusion will largely take care of (the) airline’s financial requirements. We will consider our expansion plans as per the schedule,” a second Kingfisher Airlines executive, who also did not want to be identified, said.
Following the economic slowdown, Kingfisher had dropped its ambitious international expansion plans, including flying non-stop to the US and other European destinations. In 2008, it had started its international operations by flying to London from Bangalore and later from Mumbai.
This year, Kingfisher started flights to Colombo and Dhaka, using its domestic fleet of small ATR (turboprop) planes. It also has government approval to fly to Chittagong, Hong Kong, Singapore and Bangkok, and plans to start an all-economy service between Bangalore and Dubai from 25 June using an Airbus A320.
“Indian banks and financial institutions now have significant exposure to the aviation sector and it is uncertain how much more they will be willing to take. With local sources of capital drying up, the ability to tap foreign investors will be key to the survival of several airlines over the next 12-18 months,” said Kapil Kaul, Capa’s chief executive for the Indian subcontinent and the Middle East, in the same report quoted earlier.
“The new (government) administration should take the long-awaited step of permitting foreign airlines to take a strategic investment of up to 49% in Indian carriers,” the Capa report said.
While Mallya is lobbying for foreign airlines investing in Indian carriers, Jet Airways’ founder chairman Naresh Goyal is opposing the move.