23/12/2012
Kingfisher Airlines best bet for a foreign carrier: CEO Sanjay Aggarwal
Economic Times
by Manisha Singhal
Kingfisher Airlines, which has cancelled all its flights through Thursday, hasn't paid salary to its employees for the past seven months and stares at a prolonged shutdown, is in talks with foreign airlines and non-airline investors for a possible stake sale to ride out of the crisis, says its CEO Sanjay Aggarwal.
While Aggarwal maintains that Kingfisher is the best bet for a foreign airline to put money in after the government allowed 49 per cent foreign direct investment (FDI) in aviation, overseas carriers are skeptical about investing in the heavily- indebted Kingfisher, which is now the smallest among the six main airlines in India. Last year, it was the No. 2 airline in terms of market share.
"We still are a viable business," said Aggarwal, strain showing on his face. "Now that the FDI policy has come in, efforts are on to recapitalize the airline, and we are in talks with foreign airlines and non-airline investors," he said, while admitting that his immediate priorities are to get the airline flying and paying salaries.
The airline is first trying to sort out the salary issue, especially after the civil aviation regulator took a tough stance on Tuesday, asking it to clear its backlog of salaries. Aggarwal said the salary for March will be paid soon.
"Some money is getting stuck in banks because of attachments, so major funding is coming from the group and from daily sales. We are hoping that some of the bank accounts will be unfrozen soon so that we can settle the salary issue," he said.
The company is seeking Rs 200 crore immediately from banks and is in talks with a consortium of banks (17 lenders with more than Rs 7,000 crore exposure) for making arrangements for this financing.
"As soon as the tax issue is resolved, the money that's stuck with banks will be made available to us. In the interim, we have asked lenders for 200 crore. With this money, we are hoping to get at least 10-15 planes flying again out of the grounded 40. With those planes up, we can have more revenues and some part of that money can be used to pay salaries," Aggarwal said, adding, "Banks have not rejected this proposal, but they are hesitant."
The CEO said a business plan for recapitalization post FDI will be presented to bank chiefs during the next round of meeting scheduled for October-end. "Banks understand that the business is a viable one. With SBI Caps coming in, it would be easier for Kingfisher as restructuring would take place then," he added.
Kingfisher's total debt stands at Rs 7,302.6 crore, which it owes mostly to government-run banks, including State Bank of India.
Last week, the airline also got a brand valuation done by business consultancy firm Grant Thornton which pegged the brand at Rs 3,000 crore, three times more than its current market cap of Rs 1,180 crore.
The airline is getting a daily dose of capital infusion - close to Rs 5 crore, according to a senior management team member - from the UB Group to sustain its regular operations and take care of its monthly salary bill, which is around Rs 20 crore. The UB Group has so far pumped in $500 million (Rs 2,619 crore) for the past 18 months, of which Rs 1,150 crore has been given in the last three months. "That's (group's commitment) the reason why airlines that were discussing with us earlier, have resumed talks."
Aggarwal refused to say how much money the group is giving on a daily basis, but said the money from sales (not all revenue is available as some of it goes to frozen accounts) and group money is what's helping the airline to stay alive.
Despite the heavy odds, Aggarwal pitched hard for his airline. "Foreign airlines do not want a domestic airline to have a big international network. This actually goes against their investment plan because then they are competing with the same airline. Even when we flew international, we had a limited international network and we would not be directly competing with any of these airlines. Now as far as the domestic network goes, we still have infrastructure, we still have staff, we still have 2 million loyal customers. How long does it take to build a domestic network? Who cares about the market share? At the end of the day, what any foreign airline is looking at is the network reach in India and you want to make sure that the network is tied with international arrivals and departures with that foreign airline," explained Aggarwal.
Aggarwal said post recapitalization, Kingfisher would look at slowly adding capacity. "While you could put 48 planes in a matter of 20 to 40 days, but that would be stretching the industry that's already struggling with capacity. Our plan is to take 12 to 15 months from the day we get recapitalized to gradually introduce capacity in a profitable manner and in consultation with the investor that's coming in, so that's kind of where it stands."
