King Without Cash

Even as the government is busy grappling with the Air India mess, it is facing the prospect of having the Kingfisher Airlines (KFA) problem dumped on its lap. If you go by media reports alone, the Vijay Mallya-promoted airlines is just a step away from bankruptcy. It had to cancel nearly a third of its flights, its pilots are deserting, while suppliers are hounding it for dues. Raising fresh capital is proving to be difficult and there is no immediate solution in sight.

The airline's immediate cash requirement is estimated at Rs 1,000 crore. This includes dues to the private airports, AAI, oil companies and other vendors. It would need another Rs 1,000 crore to be able to run its operations properly. The Centre of Asia Pacific Aviation (CAPA) estimates KFA's need at $800 million plus over the next two years. Out of this, $400 million is required urgently, says Kapil Kaul, CEO, CAPA.

Market sources say the promoter who has already brought in over Rs 500 crore since April 2011, may need to invest more funds — probably a similar amount — before any lender agrees to fork out more.

Apparently GMR, which operates the Hyderabad and Delhi airports, has threatened to put the airline on "cash and carry" in Hyderabad starting 11 November. That means, the KFA planes can fly only if they pay the money upfront. The airline has sought an extension of the deadline. If the airline does not settle dues — currently, Rs 95 crore — the cash and carry could be extended to Delhi too. Cheques to Airport Authority have also been bouncing — the latest being a Rs 15-crore one. Dues to AAI amount to nearly Rs 300 crore.

The airlines' cockpit crew has not been showing up every once in a while, and now even duty managers at Delhi and Mumbai airports have failed to turn up for work. KFA now owes Rs 10 crore to Jet Airways, which has carried close to 3,500 of its passengers over the past couple of weeks. It has collected the money from passengers, but is yet to pay it to Jet.

The airline is facing this severe crunch primarily because most vendors have put it on cash and carry. Most of what is earned goes to pay these dues on a daily basis, whereas the airlines typically receive its money over 15-21 days. This failure to roll-over is causing the current crunch.

The million-dollar question, according to airlines CEOs, is whether the government would actually step in and try to salvage the situation in some way through the public sector banks, since they cannot afford to allow Kingfisher Airlines to collapse. "The contagion effect on banks — many banks have large exposures to the airline — will be a cause of worry for the government", says a ministry official. However, setting a precedent by helping in a bailout of one private company would be dangerous for the future — across industries.

(This story was published in Businessworld Issue Dated 21-11-2011)