The King’s In Trouble

chairman of Kingfisher Airlines
(Pic by Sanjay Sakaria)

Kingfisher Airlines is burning cash like a Nasa spaceship. According to Mumbai-based banking sources, the company’s debt is reaching “unserviceable” proportions as total loans today stand at roughly Rs 6,000 crore and the outstanding current liabilities (due to oil companies, airports and so on) at Rs 1,800 crore.

On the other hand, its poor market capitalisation of roughly Rs 978 crore (as on 16 April 2009) makes raising resources against the equity very difficult. There is also a monthly interest burden of Rs 100 crore as the debt reaches what many analysts describe as “frightening levels”.

The losses of the airline are also mounting. For the quarter ended December, the net operating loss was Rs 626 crore. However, after making some adjustments, the net loss was Rs 413.93 crore. If one goes by the net operating loss, the airline’s daily operating loss is just over Rs 7 crore. The company’s debt-equity ratio, which was at 5.12:1 as of FY2007-08, is believed to have shot up significantly.

“(Chairman) Vijay Mallya has been claiming he will raise $400 million for Kingfisher Airlines by parting with some of the stake,” says one industry analyst. “He wants to raise this amount in a company that is valued in full at about $200 million. It is a joke.”

The huge debts also imply that several banks have a huge exposure to the airline. It is common knowledge that ICICI Bank — one of the major lenders to the airline — has refused it any further loans.

The fact that the airline is finding it hard to make ends meet has been evident in the small things it does — or does not do. At many airports, for instance, even when aerobridges are available, the airline has been shunning their use (and thereby payment) and using the buses to cart passengers.

Time and again, the ministry of civil aviation has threatened to invoke the airline’s bank guarantees to settle dues from the carrier to the Airports Authority of India. Oil companies have been hounding the airline for payments, which it keeps deferring from week to week. The airline has in the past few months put off deliveries of many of its aircraft, and has postponed or trimmed down many of its proposed international routes. The aviation ministry rattled by the losses the domestic carriers have been totting up is doing its own internal assessment of the financial position of various airlines.

Mallya had few or rather scanty replies to offer to queries on his airline’s financial troubles. In response to a fairly detailed questionnaire sent by BW, Mallya suggested that we refer to his latest balance sheet and quarterly results. Questions on when the debt comes up for payments and how it would be met were left unanswered as were queries on how he hoped to turn the operations of the airline around. The same set of questions sent to the airline’s CFO, A. Raghunathan, also remained unanswered.

However, the fiscal and quarterly results are even gloomier. In the first nine months of FY2008-09, Kingfisher Airlines has incurred a net loss of Rs 1,054 crore on operating income of Rs 4,168 crore. In comparison, in FY 2007-08, it had a net loss of only Rs 188 crore on operating income of Rs 1,441 crore.

Clearly, the globe-trotting chairman of the airline may need to take one flight less and turn his attention on to a situation that many feel urgently needs it.

(Businessworld Issue Dated 21-27 April 2009)

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