Crisis at Kingfisher deepens, airlines urgently needs $400 million to survive

Tycoon Vijay Mallya's cash-strapped and bleeding private carrier Kingfisher Airlines urgently requires about $400 million to survive and keep flying.

Tycoon Vijay Mallya's cash-strapped and bleeding private carrier Kingfisher Airlines urgently requires about $400 million (Rs.2,000 crore) to survive and keep flying, an aviation expert said late on Friday.

"If Kingfisher has to survive, it urgently requires capital infusion of $400 million, including $200 million immediately to maintain its daily operations," Centre for Asia-Pacific Aviation (CAPA) chief executive Kapil Kaul said.

Noting that the financial health of Kingfisher was critical, Kaul said the country's leading private airline had to operate a manageable fleet from cash flow perspective and rationalise its routes to match with demand.

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"The airline has no choice but exit from loss-making routes and operate a fleet that is manageable from a cash flow point of view," Kaul said from New Delhi.

The two-decade-old CAPA provides independent aviation market intelligence, analysis and data services.

Expressing concern over the sudden turn of events for the debt-ridden airline, Kaul said Kingfisher had to find ways and means to reduce non-bank dues at least by Rs 2,000 crore to overcome the financial crisis it was facing.

"According to our estimates, Kingfisher will require about $800 million (Rs 4,000 crore) to fully fund its business plan over next two years. Funds can be raised through rights issue (as planned), GDR (global depository receipts), QIPs (qualified institutional placement) or converting finance leases into sale lease back and leverage future aircraft orders," Kaul said in an e-mail.

Advocating substantial contribution and commitment by the promoter group (United Breweries Holdings & Kingfisher Finvest India), the aviation expert said the airline had to bring in serious management to initiate a genuine recover plan.

"The key issue is to ensure sustainable viability. We have a largely loss-making aviation industry due to the very fragile financial status of the domestic airline industry in which Kingfisher is no exception," Kaul pointed out.

The Indian private carriers reported a combined cumulative loss of $6 billion (Rs.30,000 crore) till March 2011.

"The domestic carriers are projected to report a combined loss of $2.5 billion (Rs.1,250 crore) by end of this fiscal (2011-12), with the state-run Air India alone accounting for $1.75-2 billion) and other airlines to the tune of $600-700 million," Kaul noted.

Making the Gurgaon-based private carrier IndiGo exception to losses as it is expected to be profitable this fiscal (FY 2012) too, Kaul said the low-cost airline continued to deliver a robust performance in extremely challenging circumstances.

Referring to the restructured debt of Kingfisher (Rs 6,007 crore/$1.2 billion), the analyst said the cumulative debt burden of the three big Indian carriers, including Air India (AI) and Jet Airways was a whopping $16 billion (Rs 80,000 crore).

"Indian banks have an exposure of $6 billion (Rs 30,000 crore) related to working capital and term loans. They will have an additional exposure ($2 billion) on the aircraft related financing," Kaul observed.

As of date, Indian carriers, including Air India will immediately require $2.5 billion to fund their operations and stay afloat.

"The operating environment is very challenging. Fuel costs are high, rupee has depreciated by over 10 per cent and AI continues to work with loss leadership pricing. I expect this to continue in the near-term," Kaul asserted.

Though the domestic aviation sector will grow 17-18 per cent this fiscal, most of the growth will come from cost minus pricing by the airlines.

"We have a serious issue on hand and that is to address the viability of these carriers. Unfortunately, there is no direction in this regard. Government response to the financial crisis continues to be ad hoc and weak. We don't have strategic aviation thinking at present," Kaul added.