Though lobbying hard for foreign equity in local airlines, Vijay Mallya has a Plan B in place to fund his loss-making Kingfisher Airlines.
FE has learnt that Mallya, who is planning to divest 15% in his liquor flagship, United Spirits Ltd, to the world?s largest liquor manufacturer, Diageo, would use the funds to shore up the cash flow of Kingfisher Airlines. ?In a global environment where funds are becoming more and more difficult to obtain this is the only way to save the bleeding aviation business?, sources close to the development said.
Such a fund infusion would give Kingfisher a breathing space while all domestic airlines, except state-owned Nacil, step up pressure on the government to revisit its foreign investment rules for the aviation sector.
Mallya on Monday confirmed to the media that he had requested the government to allow foreign airlines to acquire up to 25% stake in Indian carriers. This followed reports that he had been in talks with a handful of foreign airlines to sell up to 25% stake in Kingfisher to keep the carrier airborne.
A statement issued by Mallya on Monday stated, ?Yes I have requested the government to allow foreign airlines to acquire up to 25% in Indian carriers as I believe aviation should be treated as per international norms and other industry sectors where strategic investors can invest. This will be an enormous wealth creator and secure the future of Indian aviation. I have received several expressions of interest from foreign airlines as the Kingfisher Airlines network is unparalleled. However I cannot give details?.
The present policy does not allow foreign carriers to pick up stakes in Indian airlines. However, regulations allow foreign direct investment (FDI) up to 100% in other areas of the aviation sector, like in developing greenfield airports or in cargo and maintenance, repair and overhaul facilities.
Mallya?s request for a level-playing field in FDI on a par with other sectors comes when airline companies are posting losses and looking for ways to synergise operations to save on costs. For instance, Kingfisher last month joined hands with Jet Airways to reduce operational costs by sharing engineering, ticketing, ground handling and other services. However, according to sources, the alliance is having its own share of problems.
Reduced air travel due to higher costs coupled with the cascading global slowdown and high ATF prices are major reasons for the airline companies posting losses.
Kingfisher Airlines, for instance, posted a 90% jump in its net loss at Rs 483.2 crore for the quarter ended September 30, 2008, against Rs 253.1 crore for the same quarter last fiscal.
Operating losses were up nearly three-fold at Rs 620 crore, from Rs 266 crore a year ago.
Though net sales for the quarter went up by almost three times to Rs 1,322 crore, as the quarter showed combined sales of the merged entity of Deccan Aviation and Kingfisher Airlines, it did not reflect in the balance sheet. Though ATF prices have been brought down, airline companies will take sometime before that shows on their bottomlines.