Fears on Kingfisher's viability grow, seeks government help

The airline's stock plummeted after the aviation regulator issued a notice to the Kingfisher seeking an explanation on the flight cancellations it has resorted to apparently to cut costs.

The airline owes huge amounts to oil companies, the Airports Authority of India and private airport operators GVK and GMR Group. The airline has not posted any profit since its launch five years ago, and reported a net loss of Rs.1,027 crore last fiscal and Rs.263 crore in the last quarter.

Mallya, who was not in the country, has now apparently asked the government to intervene in the matter by encouraging banks to give it credit and to buy more time from oil marketing companies (OMCs).

"He (Mallya) has met me and explained the situation. He has not been able to get financing from banks. So, I have had a word with the finance minister about it," Civil Aviation Minister Vayalar Ravi told reporters here.

According to Ravi, he has also spoken with Petroleum Minsiter S. Jaipal Reddy, whose ministry controls the three OMCs to provide relief to the cash-strapped airline.

"It (Kingfisher) is in an unfortunate situation. As the government we don't want the airline to close down. We want them to fly," Ravi added.

However, the prinicipal opposition party -- Bharatiya Janata Party (BJP) was dead against any bailout package.

"As a finance man I cannot support such a concession to a private sector entity," BJP leader and former finance minister Yashwant Sinha said.

"If Kingfisher airlines is not in a position to run on a financially viable basis, then it should find its own way. Whether they close, merge or do anything, there are many possibilities but no case for bailout," he added.

The airline on its part said it has not asked for a bailout package but only requested the lenders to increase the borrowing limit.

"Kingfisher has not made any bail out request to the government. We have only asked our banks for an increase in limits due to significant increase in operating costs," the company said in a statement.

Kingfisher, which has a Rs.6,000 crore debt, took various steps like hiving off low-cost operations and restructuring a part of its debt.

The recent turmoil in the airline started after it reduced 32 flights from its daily schedule, a move which the company said was taken to rationalise route plans and improve yields.

"As per the revised schedule, it will offer 300 daily flights connecting 54 cities as compared to its previous schedule of 340 flights," the statement said.

However, this was seen only as another sign of distress by the stock markets.

The company's stock at the Bombay Stock Exchange (BSE), declined over 19 percent in early trade to a new low of Rs.17.55. It however pared some of the losses and closed the day at 19.65, down 9.45 percent.

Also, the airline saw about 100 pilots quitting recently, the company said such attrition levels were normal for the aviation business.

"No Kingfisher flights have been cancelled due to lack of pilots or other staff. The attrition of 100 pilots did not happen overnight," the statement said.

The statement added: "Kingfisher has sufficient number of pilots and a robust pipeline of new pilots to continue to operate its scheduled flights."

In the backdrop of a 30 percent increase in jet fuel prices since December 2010, the domestic airlines' are expected to lose Rs.3,500 crore in the first six months of this fiscal.

"Fuel prices have increased but the fares have not, this is a big problem. We request the state governments to reduce the sales tax," said Ravi.