Kingfisher's sob story: Out of cash - and options?

Things just seem to be getting worse at Kingfisher Airlines. Its problems keep mounting and so far, no white knight has come soaring out of the skies to rescue the financially-sinking airline.

On Thursday, in the latest development, Mumbai Airport said it will place the airline in cash-and-carry mode from Saturday if it failed to clear its outstanding dues of Rs 90 crore by then.

Cash-and-carry mode refers to a situation in which an airline pays every time it takes off and lands for a flight at the airport, instead of getting a credit period.In cash-and-carry mode, the airline will have to pay Rs 60 lakh a day to fly aircraft in and out of the airport everyday.

Well, if it had that kind of money, it would have paid. The problem is that it has very little or no cash, and at the moment, is finding it tough to even pay its staff’s salaries.

Fund squeeze continues

According to DNA, the salaries of pilots for October have still not been paid .

The airline desperately needs working capital of Rs 400-600 crore, but so far, the banks have refused to oblige.Their (banks) grumpiness is understandable, since 14 of them participated in a debt restructuring deal with the airline earlier this year - and burnt their fingers once already.

Already, the airline owes about Rs 7,060 crore in long-term debt to 14 banks, who don’t want to lend more unless they see a viable business plan.

Worse, the airline also failed to pay its interest due by 30 November to lenders, making its account a potential non-performing asset (NPA) for banks, according to Business Line. An account becomes an NPA if interest is not paid for one quarter.

In addition, two airplane-leasing companies are also threatening to take back aircraft from the airline, according to The Wall Street Journal. Actually, that might work to Kingfisher’s advantage because given its drastic flight reductions- nearly 43 percent - a fleet reduction might actually help it pare operating and maintenance costs.

Chairman Vijay Mallya has, so far, refused to inject any more equity into the company - a key demand of bankers.That’s possibly because 90 percent of the founder’s shares in Kingfisher are pledged , which limit his ability to raise funds.

Indeed, while Mallya controls the entire United Breweries group through various holding companies, most of the stakes have been pledged as collateral for loans, according to a Bloomberg report .

So what are Mr Mallya’s options now?

He can’t raise equity because market sentiment is terrible right now. Indian equity markets are the worst-performing major Asian market this year, down 23 percent for the year. Kingfisher’s shares are down a whopping 64 percent.

He can’t raise more debt because the airline is already neck-deep in it. And borrowing costs in India are second-highest in the region. He can try to raise funds abroad, but global banks, already frightened by the exposure to European sovereign debt, are likely to be wary of helping a cash-strapped airline that made global headlines over its woes.

An institutional investor might help, but again, who would want to? Most local airlines will be unwilling to pick up a stake in Kingfisher because they too are struggling against high fuel and operating costs, as well as cut-throat price wars.

A foreign airline can’t pick up stake because the rules don’t allow them too; even if foreign direct investment is allowed up to 24 percent, few will want to take a stake that does not give them any say in running the airline. Why invest when you are not sure how the money will be spent?

Mallya had earlier assured investors that he is talks with an Indian investor, but, so far, has refused to reveal who it is.

As the vultures of financial doom hover over Kingfisher, rivals are making a killing. The airline slipped to third spot in market share in October, ceding ground to IndiGo. Jet Airways is also planning a bigger push into the budget airline segment, which Kingfisher decided to exit recently to focus on full-service operations, according to The Economic Times.

If the airline fails to pay the airport authorities in cash-and-carry mode, it risks being prevented from operating even the flights it can.

After no money and no new investors (as yet), Kingfisher might soon not have any flights or passengers as well.