Relief for Kingfisher as public sector banks, oil cos ready to consider working capital loan

Written by Nirbhay Kumar | New Delhi | Updated: Dec 29 2011, 07:40am hrs
The beleaguered Kingfisher Airlines could look for some respite with public sector banks and oil companies ready to consider its demand for working capital loan and credit period for jetfuel with certain riders. The countrys largest airport operator, Airports Authority of India (AAI), has agreed to give 105 days credit to airlines against bank guarantee.

Financial services secretary DK Mittal who is part of the panel of secretaries looking into the stress of airline sector has said that banks would assess the working capital requirement of airlines on the basis of the revival plans put forth by them.

He, however, expressed his concerns for low equity base of airlines saying this inhibited banks from providing unsecured advances.

We are in talks with several investors including foreign ones (for funds). We would successfully raise the capital, Kingfisher Airlines chairman Vijay Mallya told FE.

SBI Capital Markets, the investment advisory arm of SBI, is working on a financial restructuring of Kingfisher.

Faced with liquidity crunch, Kingfisher had approached aviation ministry, the administrative government department for airline sector, for relief from public sector oil companies and also short-term loan from banks. While the banks have linked further loan to the airline with its ability to raise equity, oil companies want advance deposit for giving a credit limit of 15 days when an airline is on cash-and-carry.

The petroleum secretary has made it clear that airlines should prepare plans for generating a positive cash flow and then seek concessions from oil marketing companies (OMCs) directly.

Kingfisher has also approached the Director General of Foreign Trade (DGFT) seeking permission to directly import aviation turbine fuel (ATF) helping it to save on jetfuel which accounts for 40% of the total operating cost.

The airline promoted by liquor baron Vijay Mallya has a debt of over R7,000 crore on its books and estimated to be losing R5 crore a day. It pulled out as many as 50 flights from its network with the airline not meeting operating costs. With reduced flights and passengers deserting it in the light of adverse publicity, Kingfisher Airlines has slipped to fifth position in market share from being number two a few months back.

Centre for Asia Pacific Aviation (Capa) India head Kapil Kaul said that the airline would be able to raise short-term debts after the promoter converts part of its loan to the airline into equity.

The domestic airline industry is expected to post a record loss of upto $3 billion in the financial year ending March 2012 mainly due to high fuel prices, weakening rupee and below-the-cost pricing of air tickets.

The sector has been making losses in spite of double-digit growth in air traffic, a clear indication of low-pricing by airlines for higher market share. With some of the domestic carriers being on the edge the aviation ministry has decided to hire a consultant to examine issues of competition and predatory pricing.