The
airline, which has lost almost 70 per cent of its market value in the
past 12 months, needs at least Rs6bn ($114m) immediately to keep its
aircraft flying and retain disgruntled pilots and stewards, many of whom
have not been paid in months.
Mr Mallya, who also owns India’s largest liquor group, in November said he was close to sealing a deal with a private investor to put $250m into the airline. So far, no such deal has been announced.
Kingfisher has declined to comment further.
“Without an external injection of liquidity, [Mr Mallya] cannot continue to run his airline,” says Sharan Lillaney, aviation analyst at Angel Broking. “In fact, it’s a miracle the airline is still standing.”
The likelihood that the airline will secure a Rs6bn lifeline from banks is also slim, given that two lenders on Friday said that Kingfisher had defaulted on loan payments.
“We agreed to restructure the loan once all the terms of the first round of restructuring have been met, except for a fresh capital infusion,” N. Seshadri, executive director at Bank of India, told local media.
Kingfisher is spending more money than it is making primarily due to rising fuel prices and a bruising price war set in motion by state-run Air India, factors that present a challenge to all of India’s private airlines.
The latest blow for the struggling carrier was a warning last week by the aviation regulator that the airline’s financial trouble could affect passenger safety. Kingfisher said it was operating all its flights with “utmost safety”.
Since its financial problems emerged in November, the airline has fallen from India’s second-largest domestic airline – carrying just under a fifth of domestic passengers – to fifth place, transporting 14 per cent of the 55m people flying in India.
In the absence of a fresh investor, analysts say one of the few remaining solutions for Mr Mallya would be to sell a stake in United Spirits, his liquor group, to raise funds for Kingfisher. Diageo, the world’s biggest spirits company by sales, is known to be interested in the company, India’s largest beer and whisky vendor.
It is unclear whether the tycoon would consider that option, but Mr Mallya’s personal sacrifice would be welcomed by bankers, who have said they would then be more open to restructuring Kingfisher’s debt if he were to show willing. This may also be his best shot at keeping control of the airline, say analysts.
If the tycoon fails to inject fresh liquidity into Kingfisher, the airline’s creditor banks could be forced to step in and oust the colourful founder. “The banks have a large stake in the airline [and] they would rather take it over than lose all of their money,” says an analyst who did not want to be named.
A consortium of mainly state-owned banks controls more than 20 per cent of Kingfisher and risks losing about Rs65bn lent to the airline. None of the banks would comment on the matter and many banking industry experts believe it is unlikely that they would want to take over and thus have to run the carrier. Before mounting any takeover, Banks would want the government to make the first move, analysts say.
Ajit Singh, India’s aviation minister, has suggested allowing foreign airlines to buy a minority stake of up to 49 per cent in domestic carriers. New Delhi currently prohibits foreign airlines from investing in Indian carriers.
Analysts say any move on Kingfisher by its banks would hinge on the government opening up the sector, as it would provide the possibility of selling their stake to a foreign carrier at a later stage.
None of India’s domestic airlines
is in a financial position to take over Kingfisher’s debts. Most are
also struggling to survive, though none are in as critical a condition
as Kingfisher.
“Kingfisher is not immune from bankruptcy ... Other airlines have gone bust before in India,” says Mr Lillaney.
Mr Mallya, who also owns India’s largest liquor group, in November said he was close to sealing a deal with a private investor to put $250m into the airline. So far, no such deal has been announced.
Kingfisher has declined to comment further.
“Without an external injection of liquidity, [Mr Mallya] cannot continue to run his airline,” says Sharan Lillaney, aviation analyst at Angel Broking. “In fact, it’s a miracle the airline is still standing.”
The likelihood that the airline will secure a Rs6bn lifeline from banks is also slim, given that two lenders on Friday said that Kingfisher had defaulted on loan payments.
“We agreed to restructure the loan once all the terms of the first round of restructuring have been met, except for a fresh capital infusion,” N. Seshadri, executive director at Bank of India, told local media.
Kingfisher is spending more money than it is making primarily due to rising fuel prices and a bruising price war set in motion by state-run Air India, factors that present a challenge to all of India’s private airlines.
The latest blow for the struggling carrier was a warning last week by the aviation regulator that the airline’s financial trouble could affect passenger safety. Kingfisher said it was operating all its flights with “utmost safety”.
Since its financial problems emerged in November, the airline has fallen from India’s second-largest domestic airline – carrying just under a fifth of domestic passengers – to fifth place, transporting 14 per cent of the 55m people flying in India.
In the absence of a fresh investor, analysts say one of the few remaining solutions for Mr Mallya would be to sell a stake in United Spirits, his liquor group, to raise funds for Kingfisher. Diageo, the world’s biggest spirits company by sales, is known to be interested in the company, India’s largest beer and whisky vendor.
It is unclear whether the tycoon would consider that option, but Mr Mallya’s personal sacrifice would be welcomed by bankers, who have said they would then be more open to restructuring Kingfisher’s debt if he were to show willing. This may also be his best shot at keeping control of the airline, say analysts.
If the tycoon fails to inject fresh liquidity into Kingfisher, the airline’s creditor banks could be forced to step in and oust the colourful founder. “The banks have a large stake in the airline [and] they would rather take it over than lose all of their money,” says an analyst who did not want to be named.
A consortium of mainly state-owned banks controls more than 20 per cent of Kingfisher and risks losing about Rs65bn lent to the airline. None of the banks would comment on the matter and many banking industry experts believe it is unlikely that they would want to take over and thus have to run the carrier. Before mounting any takeover, Banks would want the government to make the first move, analysts say.
Ajit Singh, India’s aviation minister, has suggested allowing foreign airlines to buy a minority stake of up to 49 per cent in domestic carriers. New Delhi currently prohibits foreign airlines from investing in Indian carriers.
Analysts say any move on Kingfisher by its banks would hinge on the government opening up the sector, as it would provide the possibility of selling their stake to a foreign carrier at a later stage.
“Kingfisher is not immune from bankruptcy ... Other airlines have gone bust before in India,” says Mr Lillaney.
