Vijay Mallya may have to dig deep into the pockets of United Breweries (UB) - his flagship spirits business - to keep Kingfisher Airlines (KFA) afloat as the bleeding carrier struggles to find funds even for basic needs such as jet fuel, vendor payments and employee wages. Analysts have also said that Mallya will have to personally commit funds to boost the airline's fund-raising ability.
The airline requires an immediate capital infusion of about $500 million (Rs 2,500 crore), a bulk of which may have to come from the coffers of UB. However, committing funds from the flagship business could seriously dent Mallya's expansion plans in the spirits portfolio.
UB Holdings Ltd (UBHL) has provided Kingfisher with corporate guarantees totalling Rs 9,135 crore as part of the master debt recast agreement through which a consortium of 13-lenders picked up a 23.2% stake in the airline in March.
As part of the agreement, shares held by the promoter group are pledged with the consortium of banks. These shares were pledged by KFA's holding companies United Breweries Holdings Limited (UBHL) and Kingfisher Finvest at R64.5 per share, a nearly 60% mark-up on the current market price.UBHL guarantees are by way of additional collateral to further strengthen promoters' commitments.
As on December, founders United Breweries (Holding), its subsidiaries Kingfisher Finvest India, United Overseas and Mallya held 58.6% of the airline.
In his annual general meeting address in September Mallya had played down fears about guarantees that UBH and himself had given to KFA creditors.
"The quantum of guarantees issued by UBHL on behalf of Kingfisher has been grossly exaggerated and incorrectly reported in various sections of the media... I have also personally stepped in to provide a third level of comfort to the lenders," he had said.
A Mumbai-based analyst, who tracks consumer companies, said that UB Holdings is scouting to acquire marquee liquor brands in Europe.
A KFA spokesperson did not respond to emails, phone calls and text messages sent by HT.
"KFA requires $400-500 million ( about Rs 2,500 crore) immediately and the delay in raising funds will make turnaround very difficult," said Kapil Kaul, CEO, South Asia, Centre for Asia Pacific Aviation, an aviation consultancy firm.
"Funding delay beyond March 31, 2012 will seriously raise risk profile," said Kaul. "However, promoter commitment to manage a very difficult situation continues to be exceptionally strong. Funds requirements will have to largely through equity as KFA cannot afford further debts. CAPA believes taking more debt will hurt the business plan in the long term. KFA's current interest costs are about 25% of the revenues and no business plan can ever be viable with such large interests costs.
Lenders have accepted the restructuring plan in principle and expect funding to be in place by April."
Last week, the airline reported net losses of R444 crore for the quarter ended December against Rs 254 crore a year-ago. The airline has grounded nearly one-third of its fleet and is struggling to pay salaries to employees. It's operating revenue declined 19% year-on-year to Rs 1,342 crore compared to Rs 1,659 crore a year-ago and passenger revenue declined by 16%. High fuel costs that make up at least 40% of variable expenses and a string of low-cost competitors snapping at its heels have seen the airline's performance parameters weaken further.