Can Mallya pull out a rabbit?

Even as Kingfisher Airlines informed the aviation regulator this week that it will source funding from its own resources to get the grounded carrier flying, there was too much scepticism in the sector whether the KFA's flamboyant promoter Vijay Mallya -- as the metaphor goes -- can really pull out a rabbit (Read: revival plan) this time?

Although KFA has not given any timeline by which it will submit the revival plan, experts aver that they have to do it in about a fortnight or a month's time if they want to save their aviation licence, -- issued on August 26, 2003 and valid till December-end this year. The licence stands suspended by the DGCA (from October 20, 2012) after Kingfisher failed to submit a plan in a stipulated 15 days.

A comprehensive revival plan should specify minimal the number of aircraft they have now and the routes they want to operate on, besides financial issues from staff salary to servicing debt (at least interest component if not the repayment).

For starters, KFA have to pay four months’ salary out of seven months’ salary dues — about Rs 80 crore — to its employees by December; it will also have to clear dues it owes to airport operators, oil companies and other stakeholders. Already, KFA owes close to Rs 300 crore to the Airports Authority of India besides other large sums it owes to private airport operators such as GVK, GMR and operators of Bangalore.

Fuel bill

The airline has to satisfy the DGCA on safety issues and viability of their financial and operational plans. In this context, analysis by the Centre for Asia Pacific Aviation (CAPA) points out that KFA needs more than $1 billion to fully fund a turnaround business plan, while the immediate requirements to actively launch the airline -- as opposed to operating a skeletal fleet of five aircraft -- has increased from an earlier $600 million to close to $700 million.

Also, Hindustan Petroleum Corporation (HPCL), which was KFA's largest supplier of aviation fuel, had snapped supply to the cash-strapped airline. HPCL reportedly encashed a bank guarantee worth Rs 434 crore provided by KFA as the airline owed Rs 341 crore in fuel dues till September.  For whatever reasons, Indian Oil's supplies to KFA is negligible, while Bharat Petroleum Corporation (BPCL) supplies fuel to the airline on a cash-and-carry basis at select airports.

HPCL obviously won’t be in a mood to extend fuel supplies on credit again and at best may settle for cash-and-carry basis. So any revival plan by KFA  should factor this aspect.
Any revival plan has to have the cooperation of all the existing stakeholders, including banks. There are 17 banks, led by State Bank of India (SBI), which have an exposure of Rs 7,524 crore to the debt-ridden airline, with SBI topping the list with a maximum exposure of Rs 1,500 crore.  The lenders together hold around 23 per cent stake in the airline since March, after the banks converted Rs 6,500 crore recast debt (after a corporate debt restructuring, or CDR, in November 2010) into equity.

Options

As large part of the debt has not been serviced for several months, lenders would expect that KFA's revival plan should include at least servicing of interest component, if not repayment of principal. The airline is already saddled with a loss of Rs 8,000 crore even as the promoters of KFA led by Mallya have most of their shares and assets pledged with banks, including the brand Kingfisher (then valued at Rs 4,100 crore), besides two properties, Kingfisher Villa in Goa and Kingfisher House in Mumbai, together valued at Rs 200 crore.

Industry sources maintain those properties will now fetch around Rs 150 crore of the Rs 7,500 crore debt as its brand valuation has deteriorated.

Bankers may have an option of invoking guarantees by the UB Group as well as a personal guarantee by Vijay Mallya. The carrier, which last year had a fleet of 66 aircraft, now has ten -- seven Airbus A-320s and three ATR turbo-props.

In the given situation, it is going to be a long winding path to KFA's flight resumption. Unless some, if not all whose business has been affected by KFA’s near demise, agree to waive off some loans and stand by the airline, it may find it tough to fly again despite employees returning to work.

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