Kingfisher on brink of collapse

Agencies/New Delhi

A security guard stands near the Kingfisher Airlines booking counter at the domestic terminal in Mumbai yesterday

Debt-crippled Kingfisher Airlines Ltd stood on the brink of collapse yesterday after nearly a week of flight cancellations and the resignation of dozens of its pilots. Vijay Mallya, the flamboyant liquor baron who owns a majority stake in Kingfisher, said he was determined to keep the airline flying and blamed a cash crunch on the tax authorities which have frozen its bank accounts over outstanding dues. “I am absolutely committed to keeping the airline going unless some government agency wishes to ground it,” Mallya told reporters. “The point is our banks accounts have been frozen by income tax authorities very suddenly and that has crippled us.” There are no provisions for companies to declare themselves legally bankrupt in India. Analysts said Kingfisher could simply shut down overnight if it fails to secure fresh equity that would shore up the sagging confidence of its creditors. “If they don’t get fresh equity, obviously they are doomed. They don’t have the money for maintenance, for employee salaries, for anything,” Sharan Lillaney, an aviation analyst at Angel Broking, said. Kingfisher shares plunged nearly 20% yesterday ahead of a meeting between the airline’s top executives and India’s aviation regulator, which demanded an explanation for the cancellation of more than 100 flights over the past four days. However, the company’s shares recovered to end slightly higher on hopes that there was still hope after the Directorate General of Civil Aviation said Kingfisher had assured it that bank funding was on its way. The regulator gave Kingfisher Airlines 24 hours to come up with a revised schedule for the aircraft still in operation. Bharat Bhushan, head of the DGCA, told reporters after the meeting in New Delhi that only 28 of Kingfisher’s fleet of 64 registered aircraft were in operation. “We have directed Kingfisher to come up with a revised schedule with these aircraft, we have given them until tomorrow,” he said. “To ground an airline of Kingfisher’s size... would cost more difficulties to the passengers so we have to take a balanced approach,” he added. Bhushan said Kingfisher had been ordered to provide better information to passengers over the cancellations after complaints from travellers across India, and added that the airline’s safety standards would be scrutinised. “We have ordered special safety surveillance on the aircraft,” he said. “I don’t want to give the impression that these aircraft are unsafe in any way but it is better to be cautious.” Emerging from the regulators’ headquarters, Kingfisher chief executive Sanjay Agarwal said: “We have had a good meeting. Some more information has been sought by DGCA which will be provided in the next 24 hours.” With one of the world’s most expensive yachts and a cricket and Formula One team, Kingfisher Airlines’ billionaire chairman is known as the “King of the Good Times” for a jet-set lifestyle that has shadowed India’s own rise as an economic power. The 56-year-old Mallya is also chairman of United Breweries (Holdings), a conglomerate with interests as diverse as aviation, breweries, biotechnology and real estate. The group has annual sales of more than $4bn. But his airline - named after his famous brand of Indian beer - has become one of the main casualties of high fuel costs and a fierce price war between a handful of budget carriers which, between them, ordered hundreds of aircraft for delivery over the next decade in an ambitious bet on the future. The Mint newspaper, citing a government official, said Kingfisher will return two Airbus A320s to lessors due to payment defaults. Other media reports said that 50 Kingfisher commanders had resigned over the past week, taking to more than 300 the number of pilots who have quit since September. “A panic button has already been pressed,” said one Kingfisher pilot, who declined to be named. “Everyone is looking out for opportunities. Resignations are unlikely to stop.” An executive at MakeMyTrip, India’s largest online travel reservations firm, said it was advising clients not to book flights on Kingfisher following the rash of cancellations. Rising jet fuel prices and cut-throat fare competition have taken their toll across the Indian airline industry despite passenger growth of nearly 20% last year. Five out of six major carriers are losing money, and analysts estimate that the industry overall is on course to lose up to $3bn for the financial year ending next month. Kingfisher, which until this year was India’s second-largest airline, has not turned a profit since it was founded in 2005 and is carrying a debt burden of $1.3bn. Its revenue has been in decline since the end of last year and now, strapped for cash, staff are not being paid and tax bills remain outstanding - adding a further $477mn to its debt, according to Kotak Institutional Equities. Shares in Kingfisher have dropped 59.7% since the start of last year, shrinking its market value to $269mn. Its domestic market has almost halved in recent months from about 20%.  The airline’s banks, which own about a quarter of the carrier taken through an earlier debt-for-equity swap, are unwilling to restructure their loans further until fresh equity is found. Mallya blames that on government policy, which is now debating a proposal to allow foreign airlines to acquire up to a 49% stake in domestic airlines but for now bars foreign direct investment in Indian carriers. “We have been requesting working capital from our consortium of bankers for a long time but the consortium of bankers took the view that the government policy was not favourable to the industry,” he said on Monday. Lenders met last week to discuss a proposal from SBI Capital Markets, the investment banking arm of State Bank of India, to extend lines of credit to the beleaguered carrier. “Whatever we have been seeing in the media in the last two days has only added fuel to fire,” said a senior official at state lender Bank of Baroda, which has loans of more than Rs5bn ($102mn) to Kingfisher Airlines. “We want to recover our money but we need to figure out how,” added the official, who asked not to be named. The government has resisted calls for the state to rescue Kingfisher Airlines, the airline has said it is not considering a rights issue and Mallya’s UB Group has ruled out using its overseas alcohol assets to raise funds for the carrier. “There is a feeling that Vijay Mallya doesn’t want to invest his money in Kingfisher,” said a pilot. “Why else would someone as rich as him want to delay staff salaries for months? He only wants to raise money from the market, not invest his own money.”