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Kingfisher Airlines: Vayalar Ravi calls on finance ministry to ease debt load

A possible government intervention through state-owned banks may help Kingfisher tide over one of its biggest problems today.

, ET Bureau|
Last Updated: Nov 12, 2011, 02.18 PM IST|Original: Nov 12, 2011, 07.13 AM IST
Kingfisher Airlines: Vayalar Ravi calls on finance ministry to ease debt load
NEW DELHI: The civil aviation ministry has sought the finance ministry's help in reviving Kingfisher Airlines, raising the possibility of the government stepping in to solve the gravest crisis faced by the country's second-largest airline till date.

Vayalar Ravi, the civil aviation minister, said on Friday he has asked the finance ministry to tell banks to restructure Kingfisher's debt. "After Mr Mallya spoke to me recently, I spoke to the finance minister three days ago and requested him to talk to the banks which had given loans to airlines and help them restructure their debt, if required," he said. He added that the airlines will have to come up with a proposal for something of this sort to happen.

A possible government intervention through state-owned banks may help Kingfisher tide over one of its biggest problems today - the high interest costs on its 7,057.08 crore of debt. But it is unlikely to solve the problem of shrinking cash flows and inability to raise equity, analysts said.

On Friday, Kingfisher shares sank to a life low of 17.55 before recovering to end the day at 19.65, down 9.45%. Kingfisher's main shareholders are UB group companies - United Spirits (USL) and United Breweries and UB Holdings. Late Friday afternoon, speculation mounted over a possible stake sale in USL to global drinks giant Diageo.

Industry sources said Diageo and Vijay Mallya could come together to do a deal enabling the foreign partner to buy a stake in USL while Mallya would get some cash to invest in the airline business. Diageo has apparently sounded out some banks holding USL shares as collateral. But Mallya denied it strongly. "All this is misinformation," he said.

Lenders to Kingfisher, with a combined exposure of around 6,200 crore, are yet to consider any plan to rejig the loans. But conversion of loans into equity or restructuring them - moves that would lower Kingfisher's interest outgo - cannot be ruled out. There was a loan restructuring exercise that took place last December after which the company has not defaulted on interest payment, said a banker.

It's understood that Kingfisher has pledged shares of UB group companies with some banks like ICICI.

If the situation worsens, banks may have to come together to initiate a corporate debt restructuring (CDR) programme to lower interest rates and reschedule repayments. But as part of all such deals, banks are likely to insist that the promoter group infuses some money into the company. If the government nudges banks to come out with a rescue package for the entire aviation industry, Kingfisher will understandably be a part of it.

"Since the Kingfisher brand belongs to the UB group and the airline company, it will be difficult for Mallya to sell the entire company. If banks decide to restructure and promoters chip in, then one way to keep the company afloat is to offer 20-30% stake to financial or strategic investors, or to bring in a partner in another group company. Kingfisher has been trying to rope in investors for some time. It won't be easy," said a banker.

Vayalar Ravi spoke as a wave of cancellations continued to affect Kingfisher operations on Friday. Short of cash and harried by restive lenders, Kingfisher has been cancelling flights across cities, leading to widespread chaos. More than 200 such cancellations have happened so far. The airline has said the cancellations are due to reconfiguration of aircraft.

"To counter these pressures and leveraging its strengths, Kingfisher decided to rationalise network, drop unprofitable flights and expedite its fleet reconfiguration. This initiative will improve the long-term profitability of the airline," a statement by Sanjay Aggarwal, CEO, Kingfisher Airlines, said. "The reconfiguration initiative will require up to three aircraft to be out of service over the next three months at any one time for this exercise to be completed. It will reduce the number of fleet configurations from seven to three, improving operational flexibility. This initiative will add more seats to the fleet, improving revenue production of each aircraft," it added.

India's aviation sector has been hit hard y rising fuel costs, shortage of pilots and dwindling cash. Aggressive expansion by low-fare airlines has eroded margins for the bigger players, triggering a price war. On Friday, Jet Airways, the country's biggest airline, posted its highest-ever loss of 713 crore versus a profit of 12.4 crore in the year-ago period while SpiceJet, a low-fare carrier owned by Kalanithi Maran of Chennai-based SUN TV network, made a loss of 240 crore versus a profit of 10 crore.

Kingfisher Airlines: Vayalar Ravi calls on finance ministry to ease debt load

Ravi said he is not asking for a bailout. "They are private carriers, I have nothing to do with them. There is no such proposal before me," he added.

Kingfisher also denied any bailout plans. "We have only asked our banks for an increase in limits due to significant increase in operating costs caused by increase in fuel prices and rupee devaluation," Aggarwal added.

In Delhi, a senior finance ministry official also dismissed talks of a bailout. "It is a private carrier. The airline must bring in money," he added.

The minister also said he is planning to apprise Prime Minister Manmohan Singh about the impending financial crisis in the airline sector, after he is back from the SAARC summit in Maldives.

"We are looking into the matter. We may speak to him too about the industry situation once he comes back," Ravi told ET. Ravi may also speak to Petroleum Minister Jaipal Reddy to extend the credit facilities to Kingfisher Airlines, acknowledging that the airline owes more than 600 crore to oil companies.

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