Bloomberg News

Kingfisher Talks to Lowy on Funds After Plane Order Scrapped

January 23, 2012

(Updates with Airbus orders in backlog, ninth paragraph.)

Karthikeyan Sundaram and Andrea Rothman

Jan. 19 (Bloomberg) -- Kingfisher Airlines Ltd., the Indian carrier facing cash shortages, said it’s in talks with potential investors including SC Lowy Financial Services after having a plane order canceled because of a lack of payments.

Prakash Mirpuri, a Kingfisher spokesman, gave no further details in a text message to Bloomberg News today. A spokesman for Hong Kong-based investment bank Lowy declined to comment.

SC Lowy may reach an agreement on a $280 million investment by the end of the month, the Economic Times reported today, citing a person it didn’t identify. Kingfisher, controlled by billionaire Vijay Mallya, is seeking new funds and restructuring operations following 16 quarterly losses.

“Anybody putting in money in Kingfisher would be seeking strong guarantees,” said Shumukh Ghosh, an analyst at Naman Securities & Finance Pvt. in Mumbai. “As a business, I would be very surprised if they survive in the current form over the next two years.”

Avions de Transport Regional, a maker of turboprop aircraft, said yesterday it canceled a 38-plane order from Kingfisher after the carrier missed payments. The airline has also grounded 12 of its existing 27 ATR planes because of a lack of parts.

“We didn’t think the situation of Kingfisher today was such that in a short time they’d be in a position to take additional planes,” ATR Chief Executive Officer Filippo Bagnato said in Paris yesterday. “There were issues with the continuity of pre-delivery payments.”

Plane Deliveries

Airlines make pre-delivery payments between the signing of an initial purchase contract and the actual delivery of the plane. Kingfisher didn’t ask for the cancellations, he said.

The airline has already scrapped low-cost services and delayed Airbus SAS A380 deliveries as part of a turnaround plan.

ATR has been negotiating with Kingfisher for about two years over plane deliveries, according to the planemaker, a joint venture of European Aeronautic, Defence & Space Co. and Finmeccanica SpA of Italy.

The carrier also has significant orders outstanding with Airbus, the world’s largest commercial planemaker, itself a unit of EADS. As of Dec. 31 Kingfisher had orders pending for five A380 superjumbos, five A350 long-range widebodies and 15 A330s, according to Airbus backlog numbers on its website. At list prices the aircraft would be worth about $6 billion.

Airbus Sales

Kingfisher is current on its payments for those planes, Airbus Chief Operating Officer John Leahy said Jan. 17, when asked about the planes.

“It’s up to them,” he said. “They haven’t called to cancel them yet,” adding that he was “fully confident” the airline would recover and be able to take aircraft.

Leahy said Airbus is seeing such strong demand for its A330-200 model that the company is considering a move to boost monthly production rates to 11 from 10.

Kingfisher, based in Bangalore, rose 1.4 percent to 25.7 rupees, the highest since Nov. 28, at the close of Mumbai trading. The benchmark Sensitive Index gained 1.2 percent. The airline had plunged 68 percent last year.

Kingfisher also seeks new loans to pay for operating costs after pledging assets ranging from its brand to furniture for loans of 64.2 billion rupees ($1.3 billion).

Equity Infusion

Kingfisher told its lenders Jan. 17 that it may receive an equity infusion of $250 million by March, three people familiar with the matter said. Banks have told the unprofitable airline they will provide short-term working capital loans after it secures the investment, said one of the people, who declined to be identified because the talks are private. The funds may come from an Indian investor, two of them said, without elaborating.

Kingfisher has enough pilots and engineers to maintain services and the regulator had no “significant findings or concerns with regard to safety,” Sanjay Aggarwal, the airline’s chief executive officer, said in a statement Jan. 5.

India’s aviation and finance ministries have recommended allowing foreign airlines to buy as much as 49 percent of local operators, a move that may help the carrier access funds.

--With assistance from Siddharth Philip in Mumbai. Editors: Vipin V. Nair, Neil Denslow

To contact the reporters on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net; Andrea Rothman in Paris at aerothman@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Neil Denslow at ndenslow@bloomberg.net


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