Saturday, November 12, 2011

Billionaire Mallya’s Kingfisher Airlines Seeks Higher Loan Limit on Costs

Kingfisher Airlines Ltd. (KAIR), controlled by billionaire Vijay Mallya, asked banks to raise its lending limits to meet operating costs and pay for fuel as the stock fell the most in a month on concern that the company needs cash.

The carrier will cut flights to 300 a day from 340 as part of a strategy to return to profit, Chief Executive Officer Sanjay Aggarwal said yesterday in an e-mailed statement.

"The whole Indian aviation industry is struggling due to high costs and lower yields," he said. "We are no exception."

Kingfisher has posted losses totaling more than 47 billion rupees ($935 million) over the last three years as it added new planes and competed against state-owned Air India Ltd. Earlier this year, it won as much as 12.1 billion rupees of new loans after banks agreed to convert 13 billion rupees of existing debt into preferred shares.

The airline is complying with vendor payment arrangements and hasn't requested the government for a bailout, Aggarwal said. India's finance ministry may ask banks to help Kingfisher restructure its debt after the carrier sought the government's assistance, Civil Aviation Minister Vayalar Ravi said yesterday in New Delhi.

"Every government has gone out of the way to support airlines and connectivity," Mallya said in comments posted on his Twitter Inc. account. "In India, airlines are overtaxed and overcharged. Wonder why?"

The carrier, India's second-biggest by market share, fell 9.5 percent to 19.65 rupees yesterday at the close of Mumbai trading, the most since Sept. 30. United Breweries (Holdings) Ltd., Mallya's holding company and Bangalore-based Kingfisher's biggest shareholder, fell 8.7 percent.

Money to Survive

"Unless there is an infusion of money at this point, I don't really see how it's going to survive," said Rishikesha Krishnan, a professor of corporate strategy at the Indian Institute of Management, Bangalore, who has written papers about Indian aviation. "That infusion of money has to come from Mallya. I can't see anybody else who's going to put money in."

Jet Airways (India) Ltd., the nation's biggest, yesterday reported a wider-than-estimated loss of 7.14 billion rupees for the quarter ended Sept. 30. Revenue rose 7 percent to 32.9 billion rupees, the company said in a statement.

Kingfisher will report quarterly earnings on Nov. 14, according to the BSE India website.

Unprofitable Flights

The airline isn't operating 36 percent of flights scheduled for the winter season, E.K. Bharat Bhushan, Director General of Civil Aviation, said yesterday in New Delhi. The slots at airports that Kingfisher isn't using will be given to other carriers, he said, without elaborating.

Kingfisher said yesterday it dropped some unprofitable flights and rationalized routes to improve long-term profitability.

"Is it Kingfisher's duty to fly on loss-making routes when state governments tax heavily?" Mallya asked in a separate Twitter comment. "Or should we be financially prudent and fly profitably?"

Shares of Jet Airways and SpiceJet Ltd. (SJET), India's only listed discount carrier, gained yesterday in Mumbai after Bhushan's comments. Jet Airways rose 2.3 percent at the close, while SpiceJet climbed 3.6 percent.

Debt Guarantees

Kingfisher has about $1.5 billion of debt and a debt-to- asset ratio of 82, according to data compiled by Bloomberg. Jet Airways' ratio is 67, while SpiceJet is at 7.7.

Jet has posted losses for at least four years even as travel demand has surged. The number of domestic passengers in India rose 18.6 percent this year through August to 39.6 million, according to the Directorate General of Civil Aviation.

Mallya, 55, doubled personal guarantees against the carrier's debt to 61.7 billion rupees in the year ended March, according to the airline's annual report. The carrier paid him 508.7 million rupees for loan assurances, according to the report, published in September.

United Breweries also more than doubled its debt guarantees to 168.5 billion rupees. The company, which owns 40 percent of Kingfisher, has dropped 71 percent this year.

Mallya formed Kingfisher Airlines in 2005, naming it after the UB Group's beer brand. In 2008, Kingfisher completed a merger with Deccan Aviation Ltd., which operated India's first low-cost airline, Air Deccan. Kingfisher had a fleet of 66 planes ranging from Avions De Transport Regional turboprops to Airbus SAS A330s as of March 31, according to its annual report.

The carrier has also ordered five Airbus A380 aircraft, deliveries of which are expected to start in 2016.

Mallya inherited the UB Group from his father in 1983 at the age of 27. He has since built United Breweries Ltd. (UBBL) into India's biggest brewer.

The billionaire also has a stake in a Formula One team. In October, he sold a 42.5 percent stake in Force India to India's Sahara Group for $100 million.

Mallya had a net worth of $1.1 billion, and was ranked 49th among India's billionaires, according to Forbes magazine.
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