Slowly, the noose is getting tighter around Kingfisher Airlines

Looks like a struggling Kingfisher Airlines hasn’t been able to muster financial support from either banks or new investors, so it’s turning to old pals.

In today’s Mumbai edition, Business Standard reports that Vijay Mallya, chairman of the UB group that owns Kingfisher Airlines, could possibly seek the help of promoters of associate companies.Specifically, the newspaper referred to the promoter of Balaji Distilleries, a company that United Spirits (a UB group company) acquired in the past financial year in an all-stock transaction (the deal was originally announced in December 2008).

Mallya could seek the help of M Sreenivasulu Reddy, the promoter of Balaji Distilleries, which has been a contract manufacturing unit for the group since its inception in 1983, the newspaper said. The promoter, through other subsidiaries, had invested about Rs 708 crore as part of the debt recast deal the airline had entered into with 14 banks earlier this year,it added.

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They have been associated with the UB Group for the past five decades, Business Standard said.

According to Mint, in 2008, Balaji’s revenues were estimated to add about 14 percent to United Spirits’ revenues, so the company in itself is not very large. Besides, it was a sick company earlier, the newspaper noted.

So far, cash-strapped Kingfisher has managed to extract just Rs 50 crore in new funds from State Bank of India, according to The Economic Times, which, in itself, is a surprise because the bank had earlier been very insistent about the airline’s promoters bringing in extra equity funds to the table before it would lend any more.

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The airline carries about Rs 7,000 crore in debt.

Now, the lenders are getting increasingly restless. According to The Economic Times, state-run banks have started to squabble with private-sector banks about controlling part of the cash flows generated by the airline.

More specifically, the squabbling is about who has greater claim over the money paid via credit card for tickets.State-run banks are arguing that because they have greater fund exposure to Kingfisher, they should have greater claim than private-sector banks.

In contrast, private-sector banks claim that they loan agreements with the airline entitles them to the proceeds for tickets paid via credit cards, the newspaper said.

All this just goes to show that the noose is getting tighter around Kingfisher Airlines.

Even its hopes for a new strategic investor will be dying fast given that foreign direct investment in the aviation industry might also be put on hold, after the uproar it created when it was permitted for multi-brand retail. It’s struggling to pay even for its daily operations currently, even as staff continue to leave in droves.

A crash landing for Kingfisher is still not off the table.