Bankers meet to discuss Kingfisher Airlines bailout

Lenders to the Vijay Mallya-promoted Kingfisher Airlines will meet tomorrow to discuss if additional funding could be provided to the airline which has run into more financial turbulence.

State Bank of India, leader of the consortium of 13 banks, has called a meeting with the other lenders, which include ICICI Bank, Punjab National Bank, Bank of Baroda and IDBI Bank. Bankers said the meeting was expected in Bangalore.

The airline may ask for additional working capital loans to tide over the current cash crunch, bankers said.

A senior State Bank of India official said the company was servicing its loan by paying interest. However, banks are constrained in doing anything more. “We have already provided life support in the form of restructuring of loans earlier this year,” the official said. The consortium meeting comes at a time when Kingfisher has to pay Rs 1,000 crore to its vendors and key lessors, which have dues of $50 million (Rs 250 crore) and are threatening to take back some of their planes.(Click here for table & graph)

The growing financial problems of the airline also impelled the government to intervene.

Civil aviation minister Vayalar Ravi on Friday said the finance minister may meet banks on helping the airline. “Mr Mallya met me and discussed the problems. The fuel rates are high and the states should also come out and rationalise their taxes,” said Ravi. He added: “I have discussed the issue with the finance minister and he may talk to the banks.”

Consortium bankers said more restructuring (already done once in April to bail out the airline) may not be possible as banks would have to classify the assets as non-performing if further debt recast took place.

According to bankers, the finance ministry backed their stance as it was of the view the promoters needed to infuse capital. Kingfisher had proposed a rights issue, which the banks declined to subscribe to. A senior finance ministry official told Business Standard the government was not in favour of bailing out private airlines. "Any project has to be commercially viable. Banks will have to decide (about restructuring) on a commercial basis."

Bankers said the Reserve Bank of India was unlikely to provide any leeway to the banks if loans were restructured. Banks' total exposure to Kingfisher is close to Rs 7,000 crore, of which around Rs 4,000 crore is in the form of term loans. The company's key lessors include AerCap, AWAS, ACG and Fly Leasing.

On the fourth day of its partial withdrawal of flights, Kingfisher Airlines saw the cancellation of more than 50 flights. The airline is not operating 36 per cent of its total flights allocated for the winter schedule.

Meanwhile, a mail from Kingfisher Airlines says that - As you are aware, the Indian Aviation Industry has been faced with the difficult task of coping with high costs and lower yields. Post considerable thought and deliberation, Kingfisher Airlines has rolled out initiatives that aim to drive the long-term profitability in our efforts to meet these challenges.

As announced earlier, we have decided to focus on the full-service market; to this end Kingfisher Airlines has initiated reconfiguration of its aircraft. This exercise will require few of our aircraft to be out of service for the next few weeks. Ergo and in line with maximizing productivity we have rationalized our network, resulting in a temporary discontinuation of approximately 50 flights out of our current operating schedule of approximately 350 departures per day. Once the reconfiguration is complete, these aircraft will be pressed back into service immediately. Clearly the report about our flights being cancelled owing to the supposed exodus of pilots appears to be falsified.

With Inputs from BS