Kingfisher thirsts for cash injection from Diageo deal

Written by Debabrata Das | Updated: Nov 12 2012, 07:14am hrs
Lenders to KFA to meet this week to take stock of their exposure

Cash-starved Kingfisher Airlines (KFA) will seek to leverage the cash inflow into promoter group companies from the Diageo deal to seek some relief from its bankers and the Directorate General of Civil Aviation, sources told FE, even as a consortium of lenders to KFA is tipped to meet this week to take stock of their R8,000-crore plus exposure to the airline.

Diageo announced on Friday that it will purchase 53.4% stake in United Spirits for around R11,000 crore. The deal, after obtaining regulatory approvals, will see nearly R2,400 crore going into the United Breweries (Holdings) (UBHL) balance sheet, giving flexibility to the groups holding company to invest in its companies.

The cash, which will come into the promoter companies, opens up a lot of opportunities for us and we are exploring them as we frame our revival plan and get ready to negotiate with our bankers and later the DGCA, said a person in direct knowledge of the development. But please remember that no cash from the Diageo deal will come into KFA before the next two months.

However, it is too early to comment that KFA will get the cash, the person added. All I can say is that amongst all the group companies, the airline needs it the most.

UBHL, which holds 24.44% shares in KFA, already has a R2,109-crore equity investment in the airline. The holding company has also given loans of R2,130.79 crore to the airline and given corporate guarantees to the tune of R8,756.44 crore to KFAs banks and aircraft lessors.

The airlines issues will be resolved by KFA and UBHL, said Vijay Mallya, the chairman of the airline in a conference call after announcing the United Spirits stake sale. It would be unfortunate if you try to link this transaction with the airline. We are working towards a comprehensive rehabilitation plan including recapitalisation of KFA.

We can ask the banks for a debt recast in exchange for shares and then bring in an investor, the person quoted above said. Alternatively, we can repay some of the debt and then bring in an investor. But the priority is to pay off our vendors, lessors, suppliers and oil companies before restarting operations.

Aviation consultancy firm, Centre for Asia Pacific Aviation estimates KFAs liabilities to be $2.5 billion, of which $1.1 billion it said are bank loans and the remaining are liabilities to vendors, lessors, employees, airport operators and oil companies. CAPA also said that the airline requires $1 billion of funding to begin a full turnaround.

KFAs survival will now depend upon the leniency of the government and DGCA and whether they are willing to give it more time in light of the cash coming into the promoter group firms. Our bankers are supporting us so we do hope there will be a favourable outcome over the course of the meeting next week, the person said. Following the bankers meeting we will formulate a plan for the DGCA.