Vijay Mallya’s Kingfisher Airlines has decided to sell its 25% equity for around Rs 2,000 crore. The group has also obtained a corporate guarantee from the group’s investment arm, United Breweries Holdings for loans worth Rs 6,400 crore, reports Business Standard. The decision comes as a part of the carrier’s operational and financial restructuring plans. The sale of equity has been designed to net strategic investors. The firm plans to securitise around 42% loans through its cash flows.
Kingfisher’s decision to sell 25% equity comes at a time when the government is considering allowing foreign airlines to buy up to 49% stake in the domestic airlines. The discussions had started with the Civil Aviation Ministry considering allowing foreign airlines to acquire 25% stake in domestic carriers. Until last year, the Civil Aviation Ministry was firm on not allowing foreign carriers to buy any stakes in Indian airlines. However, due to the slowdown in the aviation industry, decline in the passenger traffic and intense competition in the industry, the aviation ministry was forced to consider the plan.
Kingfisher Airlines had earlier said that it favours foreign investments. International airlines like Virgin Atlantic and British Airways Plc had also expressed their interests in buying stakes in Indian carriers. Recently Kuwait-based low-cost airline Jazeera Airways had also expressed interet in picking up stake in Indian carriers.
UB Holdings would give corporate guarantee as collateral for Rs 6,356 crore worth of loans to fund aircraft acquisitions and lease rentals. UB Holding’s corporate guarantee becomes important for the appeasement of the lenders as Kingfisher’s balance sheet is viewed as not being strong. This is because a large part of its fleet is leased and not owned. Consequently, Kingfisher does not come across as an asset heavy company.
The report also mentions that Kingfisher, in its attempt to streamline operations, is returning surplus aircrafts and is deferring the deliveries of the new ones. Sources suggest that Kingfisher will not take delivery of any wide-body aircraft before 2012. The airline is also returning 9 aircrafts to the leasing companies and some of them have already been returned. Kingfisher expects to realise $100 million (about Rs 5,000 crore) by deferring deliveries of new aircraft.
Kingfisher’s operations shrank 21% in 6 months to December 2008. Kingfisher Airlines posted a loss of Rs 626 crore in the third quarter ended December 31, 2009.