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Mallya Seeks To Ease Worries Over Kingfisher’s Finances

16 November, 2011

Kingfisher Airlines chairman Vijay Mallya offered little to revive its finances after India’s No.2 carrier by market share reported its quarterly loss doubled.

Mallya, a flamboyant liquor baron who owns a Formula One motor-racing team, said on Tuesday Kingfisher had not asked banks to “take a haircut” but was looking for ways to reduce the interest paid on its $1.3 billion debt, which has risen to 14 per cent from 11 per cent last year, and add working capital.

Investors have grown increasingly worried over the future of Kingfisher Airlines in a fast-growing but loss-making industry.

Kingfisher, named after its parent firm’s best-selling beer, cancelled scores of flights last week as it abruptly shut some routes. It has also been late paying salaries.

Mallya said the government should allow foreign airlines to buy stakes in Indian carriers, a move the authorities are reportedly considering.

Ravi Nedungadi, chief financial officer of UB Group, the airline’s parent, said it had been approached by strategic investors. An official with one of Kingfisher’s lenders said Mallya was talking to a potential strategic investor.

The banker, who declined to be identified, said some type of debt restructuring is inevitable.

“It may not be by way of sacrificing interest costs or converting debt into equity — banks have already said no for that. But it could be rescheduling of loans or refinancing as well,” said the official from a state-run bank that holds a more than 1 per cent stake in Kingfisher.

To ease its fuel bill, Kingfisher had asked authorities to directly import fuel. Taxes make jet fuel in India 60-70 per cent more expensive than the global average.

Mallya defence the move to stop flying unprofitable routes, which drew rebukes from the government last week and stranded passengers who had not been told in advance.

“We cancelled flights not because we could not afford to fly,” he said, adding the situation could have been handled better. “We cannot, as a private company, afford to fly on routes that are heavily loss-making. We are not in the same arena as the national carrier (Air India),” he said.

Kingfisher shares closed 1.9 per cent higher. The stock has lost two thirds of its value this year, shrinking its market value to about $213 million.

“This industry needs some structural reforms. The impractical competition among players has driven down ticket prices and the high fuel cost is also hitting very badly,” said Sharan Lillaney, an airline analyst with Angel Broking.

Debt Restructuring

Kingfisher, which has been asked by creditors to raise $160 million in equity, aims to launch a rights issue for up to Rs 20 billion ($397 million) shortly after its end-March financial year-end at the latest. It is also considering a global depositary receipt issue, Nedungadi said.

Both plans have been stalled by weak markets, while an earlier plan to bring in private equity was not successful.

Nedungadi said Kingfisher has asked banks for Rs 7-8 billion additional working capital, as well as 1.5 billion of term loans to fund fleet reconfiguration as it ends its budget offering.

The airline’s founders have made 8 billion rupees “soft” loans to the carrier, which will eventually be converted to equity, he said.

R.K. Gupta, managing director of Taurus Mutual Fund, said he was avoiding the airline sector. “I think a rights issue is very unlikely in the near term,” he said.

Fuel Cost Bites

Kingfisher, which has never made a profit since its 2005 launch, saw its fuel bill jump 70 per cent in the September quarter. Passenger revenue rose 9 per cent, revenue per available seat kilometre (ASK) fell 16 percent, and cost per ASK rose 8 percent. Its net loss more than doubled to Rs 4.69 billion.

“While all airlines have taken a deep hit this quarter because of high fuel prices, Kingfisher is in such a bad shape that they need to look for funds to stay afloat,” said Neeraj Dewan, director at New Delhi-based Quantum Securities.

Despite passenger traffic being on track to grow 17-18 per cent, the Centre for Asia-Pacific Aviation expects Indian airlines to lose at least $2.5 billion in the 2011/12 year to March, with state-owned Air India likely to account for more than half the total.

Air India has long been on government life support, and some in the industry blame it for pushing prices below cost.

“They continue to initiate below-the-belt pricing, but then everybody else follows it,” said Kapil Kaul, CAPA’s chief executive for the Indian subcontinent and Middle East.

Private carriers Jet Airways, the country’s largest airline, and budget operator SpiceJet, also reported losses in the September quarter.

Indian airlines have ordered hundreds of aircraft for delivery over the next decade.

Mallya said he would speak with Airbus about pushing back delivery of five A380 superjumbos, which it was to begin receiving in 2014.

Earlier this year, Kingfisher, cut its debt through a restructuring by issuing shares to 14 banks.

RIL Denies Kingfisher Stake-buy Talks

A spokesman for Reliance Industries denied on Wednesday a newspaper report the energy major was in talks to buy a stake in cash-strapped Kingfisher Airlines.

The Business Line newspaper had reported that Reliance might make a financial investment or pick up a stake through a preferential offer by the carrier, which could be followed up by an open offer to public shareholders.

Citing an unnamed person close to the airline, the paper said Reliance was understood to have engaged a merchant banker to carry out due diligence of the carrier.

Ravi Nedungadi, chief financial officer of UB Group, the airline’s parent, had said on Tuesday it had been approached by strategic investors.

An official with one of Kingfisher’s lenders had also said the carrier’s chairman, Vijay Mallya, was talking to a potential strategic investor.

Kingfisher, which reported a September quarter loss of Rs 4.69 billion ($92 million) on Tuesday, cancelled scores of flights last week as it abruptly shut some routes. It has also been late paying salaries.


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Mallya Seeks To Ease Worries Over Kingfisher’s Finances

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