Bloomberg News

Kingfisher Air Submits Second Revival Plan as UB Offers Help

April 11, 2013

Kingfisher Airlines Ltd. (KAIR), grounded since October following five years of losses, submitted a revival plan to Indian authorities for a second time after the previous proposal was rejected as inadequate.

Parent UB Group will give 6.5 billion rupees ($119 million) to help the carrier restart flights, Kingfisher Chief Executive Officer Sanjay Aggarwal said after meeting India’s aviation regulator in New Delhi yesterday. The airline plans to resume services with seven aircraft, he said.

Kingfisher’s present plan is more “practical” as private airport operators and aircraft lessors support it, a government official said. Liquor tycoon Vijay Mallya’s latest attempt to revive the Bangalore-based airline comes as Indian carriers struggle with high operating costs and competition is set to intensify with the entry of AirAsia (AIRA) Bhd. later this year.

“It’s a good thing if the regulator is seeing substance in the plan,” said Harsh Vardhan, chairman of Starair Consulting, a New Delhi-based company that advises airlines. “Nobody, whether it’s creditors or lessors, would like to come in the way of a restart. They know it’s a trade-off between write-off and possibility of recovery.”

Indian authorities had rejected Kingfisher’s previous revival plan, saying the funding pledged by the parent wasn’t adequate to ensure reliable services and the carrier didn’t disclose how it will pay money owed to airports. The aviation regulator had suspended the airline’s permit in October following flight disruptions caused by strikes triggered by unpaid wages. The carrier’s flying permit lapsed Dec. 31.

Airbus A380

Shares of Kingfisher gained 4.6 percent, its first increase in seven days, to 7.90 rupees at close of trading in Mumbai. The stock has slumped 47 percent this year, after falling 29 percent in 2012.

Kingfisher, the only Indian carrier to order Airbus SAS A380 superjumbos, has defaulted on payments to creditors, fuel suppliers and airports. The carrier, which was No. 2 in India by market share in 2011, has a debt of 86 billion rupees.

Mallya, who founded Kingfisher in 2005, is under pressure to repay the carrier’s debts. State Bank of India, the biggest lender to Kingfisher, said earlier this month it will seize the collateral pledged for the airline’s loans. An Indian court has declined to stop banks from selling pledged shares of United Spirits (UNSP) Ltd.

Pledged Shares

Mallya, who is selling a stake in United Spirits to Diageo Plc, will use proceeds from the sale to pare Kingfisher’s debt, Prakash Mirpuri, a UB Group spokesman, said in February. Mallya’s UB Holdings lost some of its stake in United Spirits and Kingfisher after banks sold a part of their pledged shares on April 1, according to stock exchange filings yesterday.

Kingfisher has been seeking cash for more than two years and held talks with investors and airlines including Etihad Airways PJSC. Abu Dhabi’s Etihad is currently in talks with Jet Airways (India) Ltd. to buy a stake in the nation’s biggest listed carrier.

AirAsia, based in Sepang Selangor, Malaysia, aims to start Indian operations in the fourth quarter after winning approval last month. Southeast Asia’s biggest discount carrier is entering India through a joint venture with the Tata Group after the government eased aviation investment rules in September.

Overseas carriers are planning to expand in India as air travel demand in the nation may surge threefold by 2020, according to the Aviation Ministry. Still, airlines are losing money as they struggle with rising fuel costs, airport charges and a price war.

Jet, SpiceJet

Jet Airways hasn’t made an annual consolidated profit in five years, while budget carrier SpiceJet Ltd. (SJET) is headed for its second straight year of losses, according to data compiled by Bloomberg. State-owned Air India has lost at least 281 billion rupees since April 1, 2007, government data show.

Aggarwal said Kingfisher aims to resume services with five Airbus A320s and two ATR aircraft, before increasing the fleet to 20. The planes for the restart are in operational condition, the Indian government official said, asking not to be identified, citing rules.

Kingfisher is also trying to win support for its proposal from the state-owned Airports Authority of India, which controls 125 airports, the government official said. The Aviation Ministry will consider a plan that will allow the carrier to repay dues to Airports Authority in installments, the official said.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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