India’s Kingfisher in Dash for Cash as Debt Pressure Mounts

 - November 21, 2011, 10:40 AM
Kingfisher Airlines has cut routes and struggled to pay bills.

Shares in cash-strapped Indian carrier Kingfisher Airline fell by almost 18 percent on November 18 as company chairman Vijay Mallya worked to secure new short- and long-term funding amid reports of further routes being cut and flights cancelled. On November 17, Mallya confirmed that he is negotiating with an undisclosed high-net-worth individual in India with a view to injecting approximately $250 million into Kingfisher. At the same time, he is in talks with the State Bank of India and a group of 13 other banks in the hope of securing a short-term loan worth almost $118 million. This would reduce the cost of interest on some $1.4 billion in debt carried by the airline.

Along with India’s two other publicly held carriers, SpiceJet and Jet Airways, Kingfisher has seen share prices tumble this year as they struggle to deal with a price war launched by state-subsidized Air India and rising fuel prices. Kingfisher has responded by cutting around 15 percent of its routes and there have also been reports of delayed payments to creditors and flight crew. Indian airlines are also struggling due to a weakening rupee currency, which raises their dollar-based costs, and inflated taxes and airport charges.

Meanwhile, the U.S. Air Transport Association (ATA) has filed a lawsuit in a federal court seeking to block the U.S. government’s Export-Import (Ex-Im) Bank from providing up to $3.4 billion in loan guarantees and “preliminary commitment” to support a 30-aircraft sale by Boeing to Air India. ATA’s lawyers are arguing that support for Air India threatens U.S. airline jobs, but the Ex-Im Bank insists that the funding is justified because it supports American aerospace manufacturing jobs. At last week’s Dubai Air Show, Stephen Hannahs, CEO of U.S. leasing company Aviation Capital Group, said that more government-backed export funding will be necessary to support airliner purchases as capital from commercial banks dries up in response to Europe’s sovereign debt crisis. “The Ex-Im Bank will have to step up its game,” he said.