Kingfisher Airlines: is it time to bid adieu?

Is this the end for Kingfisher Airlines? Sure, seems like it.

On Friday, The Economic Times reported that lessors of Kingfisher Airlines plan to take back aircraft leased to the airline amid growing doubts about the future of the company and its strategy. If that happens, the airline will struggle not just with fewer pilots but also fewer aircraft, which could soon lead it to shutting operations altogether.

The Times of India also reported that about 130 pilots had quit the cash-strapped airline in the past few weeks on worries about the future and salaries.

The growing travails of the struggling carrier have dominated newspaper and TV headlines this week. On Tuesday, the airline announced that it was cancelling 31 flights daily until 20 November because of a severe cash crunch and large-scale desertion by staff, which had led to a drastic drop in the number of pilots available for the airline. That was after it cancelled some more flights previous weekend. Reports said the airline was also, once again, unable to pay its fuel bills on time.

Both stories sent airline ticket prices soaring. According to a CNBC TV-18 report , prices for a one-way Delhi-Mumbai flight soared to as much as Rs 23,000.Before Kingfisher’s flight cancellations, the average economy fare on this route cost between Rs 6,000 and Rs 7,000.

Chairman Vijay Mallya told CNBC TV18 in an interview that"the decision to reschedule, cancel and rationalise flights were necessary to cut losses and enhance the airline’s revenues". But it might already be too late for that.

The move to cut flights didn’t upset only passengers; on Thursday, the Directorate General of Civil Aviation ( DGCA) issued a show-cause notice to Kingfisher asking why it had not taken the regulator’s prior approval before curtailing its flight schedules as required by the Aircraft Rules, 1937. The airline has yet to respond to the aviation regulator.

SOS to lenders

Clearly, unless the airline gets a financial lifeline from somewhere, it’s difficult to see it surviving for too long in its current form.

The airline, burdened by debt of Rs 6,500 crore, is currently unable to access funds from either banks or the equity markets even as it loses about Rs 3-4 crore a day, according to The Economic Times. Indeed, in late September, research firm Veritas Invest said Kingfisher Airlines was already “bankrupt”, according to a Firstpost story . The research firm also said the airline would need Rs 3,000-4,000 crore to get back on its feet.

Airline officials might insist the company will not shut down, but really, given its dire situation, how does it propose to survive without that kind of money?

Unless it is able to negotiate a hefty last-minute deal with lenders (which seems extremely unlikely) Kingfisher is left with only two options: shut down or be acquired by another airline.

Given its huge debt load, Kingfisher isn’t a great acquisition target right now. More importantly, most other local airlines (barring Indigo) in the country are also struggling with tough times brought on by rising fuel prices and intense price wars, so they’re in no position to acquire rivals either.

A foreign airline can’t come to the rescue just yet because Indian regulations don’t permit that. India allows 49 percent foreign direct investment (FDI) in airline companies, but foreign airlines are not allowed to invest in the sector currently.

So what can the ‘King of Good Times’ do? Maybe decide that it’s time to just bid adieu.

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