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With promoters unable to raise
money, airline may find it difficult to sustain curtailed operations
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Kingfisher Airlines Ltd, the
cash-strapped carrier promoted by liquor baron Vijay Mallya, is set to enter
tougher weather, with its financial woes mounting in a deteriorating macro
economic scenario, leaving its lenders struggling to reduce their exposure to
the carrier.
The airline owes nearly Rs 300 crore
to the exchequer, and senior tax authorities have already attached its bank
accounts for non-payment of dues. Kingfisher also owes Rs 100 crore to airport
developers — GMR and GVK Group. Besides, employees, who haven’t got salaries
for a few months now, have given an ultimatum to the management to pay them
immediately
This is the present condition of the airline, which, until
recently, was India’s second biggest by market share.
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THE MACRO FACTORS HAVE
NOT HELPED EITHER...
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Fuel prices: Though oil prices have softened a bit, they were high for
much of the last year. They have again started rising on fears the European
Union could proceed with plans to introduce an embargo on oil supplies from
Iran
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Weak currency: The rupee has depreciated more than 20% in
the last 12 months, pushing up the price of dollar-denominated costs such as
fuel, aircraft leases, maintenance and offshore interest obligations
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Airport charges: The regulator has approved a 334% increase in charges at
Delhi airport, while the Mumbai airport has sought an increase in fees by
500%. The dual effect of these levies is likely to push Delhi-Mumbai airfares
by 15-20% which could hurt traffic. Charges will also go up in Chennai and
Kolkata to fund modernisation
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Service tax: The extension of the service tax regime on
economy class airfares from a fixed amount to an ad valorem percentage will
increase fares by 12%
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The operational staff of Kingfisher
is expected to be around 1,300 now for the 12 aircraft it is operating, down
from a massive 7,000 employee base for 66 aircraft by the end of 2011.
The airline has said its “excess
employees” will be on leave till their “holding plan” gets sorted out and until
its discussion with lenders and tax authorities fructify and it regains the
original fleet strength, which now appears a distant possibility.
Kingfisher’s share price has fallen
to almost a fourth in the past 12 months. It closed at Rs 11.94 on Thursday on
BSE.
Today, the company is struggling to
manage a debt of around Rs 8,000 crore, compounded by negative networth and
precipitated by accumulated losses of around Rs 5,000 crore. Most of the
operational income is going towards oil marketing companies and airport
developers in a bid to keep at least 12 aircraft flying, without which the
airline will grind to a halt.
Is Kingfisher hurtling towards a
dead end?
“I don’t think Kingfisher has
reached that situation yet,” said Kapil Kaul, CEO (South Asia) of Centre for
Asia Pacific Aviation (Capa), a leading aviation consultancy firm.
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WHILE IT HAS FAILED TO
CLEAR ITS DUES...
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Rs 8,000 cr
Debt by the end of FY12, against about Rs 7,000 crore by the end of FY11
Rs 5,000 cr
Accumulated losses
Rs 1,300 cr
Interest outflow
Rs 300 cr
Outstanding to exchequer
Rs 100 cr
Outstanding to airport operators
12
No of aircraft in operation (as on June 30, 2012) from 66 by end of 2011
1,300*
No of employees (as on June 30, 2012) from 7,000 by end of 2011
Struggling to get extension of
working capital limits
*Estimated on the basis of around
110 personnel per aircraft. The rest of the employees were told to go on
leave with part payment until operations stabilise
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“With around 12 aircraft, they can
still manage to stabilise the operations if equity infusion happens from an
overseas carrier. Until then, it certainly will be a struggle, but I don’t
think they will close down,” he added.
However, this is not a unanimous
view among analysts and sector experts. “Kingfisher Airlines doesn’t have any
other option but to shut down. From an average of 350 flights a day to around
90 flights now, it happened quite quickly. And from that, going down further is
just a matter of time,” an analyst with a well-know Indian brokerage firm told
Business Standard.
“It’s more likely that the lenders
will be going for the last step of encashing the guarantees which they hold,”
the analyst, who tracks the Indian aviation sector quite closely, said on
condition of anonymity.
Added Jasdeep Walia, an aviation
analyst with brokerage firm Kotak Securities Ltd: “In our view, Kingfisher
could make further capacity reductions in the current quarter. Normally, the
second quarter is the weakest for airlines, when PLF (passenger load factor)
and hence yields are low and cash losses peak.”
Further cash losses and lack of
working capital support from banks can lead to more capacity cuts by
Kingfisher, he said. “As of April 2012, Kingfisher accounted for approximately
six per cent of industry capacity,” added Walia.
The extent to which Kingfisher has
been cancelling flights recently could be gauged from this. On Wednesday, it
cancelled a total of 17 movements from Bangalore, while on Monday it cancelled
18 flights. Four flights were cancelled from Mumbai and three from Delhi, while
important stations such as Hyderabad and Kolkata are not being served.
The airline has been, however,
maintaining that there are some cancellations due to maintenance work and they
are continuing with their holding plan until they get extended working capital
limits from banks and the tax authorities defreeze their accounts.
A consortium of lenders led by State
Bank of India is struggling to see how best they can try to get their returns.
ICICI Bank Ltd has managed to get rid of the problem when it sold its Rs
430-crore debt exposure to a debt fund managed by Srei Infrastructure Finance
Ltd. Other banks may not find such options coming in easily.
While the promoters have pledged as
much as 90 per cent of their holding towards various lenders, which is now
worth hardly around Rs 30 crore, bankers are mulling how best they can monetise
the corporate guarantees that the UB Group has provided towards Kingfisher.
UB Holdings Ltd (UBHL), the primary
promoters’ vehicle, has provided Kingfisher with corporate guarantees totalling
Rs 9,135 crore. Each of these primary obligations is supported, in the first
instance, by Kingfisher’s assets and cash flows and the UBHL guarantees are by
way of additional collateral. It is this pie of corporate guarantees that the
bankers may have to tap to recover their dues.
UBHL holds stakes in other group
companies of UB Group -- United Breweries Ltd, United Spirits Ltd and Mangalore
Chemicals and Fertilizers Ltd--which have also been pledged towards the
lenders. The bankers’ first move may be to tap into these resources to press
for further equity infusion from the promoters.
The airline has been sweating its
equity as much as possible and a few steps such as encashing on its real estate
holdings can just give them some breathing time until the foreign direct
investment policy in the Indian aviation gets clearer.
The macro-situation for Kingfisher
and for the Indian aviation sector in general is expected to deteriorate
further.
“The oil prices and the volatility
in the rupee are expected to dent the prospects of the Indian aviation sector
during this financial year. In addition, the airports regulator has already
approved a 334 per cent increase in charges at the Delhi airport, with Mumbai
expected to be allowed to raise fees by up to 500 per cent,” said Capa’s Kaul.
“Combing these additional levies is
likely to have the impact of increasing Delhi-Mumbai airfares by 15-20 per
cent, which will affect traffic. Increased airport charges are expected to be
progressively introduced at other airports such as Chennai and Kolkata to fund
the modernisation programmes,” he added.
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