Bleeding Kingfisher seeks a transfusion
Last month Vijay Mallya met senior government officials in both the finance and civil aviation ministries to present details about the precarious state of private airlines’ balance sheet, showing how losses will only multiply unless fares are hiked, a government source told HT requesting anonymity.india Updated: Nov 10, 2011 01:47 IST
This isn’t the best of times for the king of good times.
Last month Kingfisher Airlines (KFA) promoter Vijay Mallya met senior government officials in both the finance and civil aviation ministries to present details about the precarious state of private airlines’ balance sheet, showing how losses will only multiply unless fares are hiked, a government source told HT requesting anonymity.
He had also sought a level playing field, arguing that state-owned Air India enjoys many advantages as it can dig into the government’s coffers to fund its way out of a crisis, an option not available to its private-sector peers.
“He has argued for an immediate need to hike fares to prevent a halt in operations,” a government source said.
Mallya’s calling on the ministers came barely 10 days after he announced that KFA will shut down its low-cost arm Kingfisher Red in the next four months.
The capital-starved airline has not made profits since its inception in 2005, had a debt of Rs7,057.08 crore as on March 31, 2011 and reported a loss of Rs1,027 crore for 2010-11.
It has been defaulting on payments to oil companies and airports, and had delayed salaries to its employees for August and September.
On Tuesday, it cancelled 34 flights across various sectors forcing hundreds of passengers to change travel plans.
Aviation regulator Directorate General of Civil Aviation (DGCA) said the airline may have to compensate passengers for these cancellations, over and above normal refunds.
The airline had also recently moved AmEx card holders to a co-branded card membership programme. With cancellations and withdrawals from routes, all these, as well as frequent-flyer programmes, will be potentially affected.KFA CEO Sanjay Aggarwal did not respond to HT’s emails or text messages. But a source, who did not wish to be identified, said the airline has begun discussions to sell equity, including with a prominent Mumbai-based industrial house.
Funds are only one of the myriad problems confronting KFA.
High interest liability, vendor payment schedules and inability to meet daily jet fuel payment commitments are making turnaround difficult.
KFA’s tanking scrip has hurt banks. A consortium of 13 lenders led by the State Bank of India and ICICI Bank had picked up a 23.2 % stake in the airline in March, of which SBI and ICICI hold 5.7% and 5.3% respectively.
In seven months, the stock price has fallen nearly 67% to 21.70 on Wednesday.