The board of Kingfisher Airlines (KFA) will consider a proposal to cut debt by more than half by selling property, converting loans from its parent company into equity, and changing the terms under which it leases aircraft.
The management of the airline, which has cancelled 200 flights in the past week, leading to fears it is close to bankruptcy, says its plan will result in debt coming down from Rs 6,500 crore to Rs 3,000 crore.
Kingfisher shares had plunged as much as 18% on Friday to an all-time low of Rs 17.7 after the airline said it was dropping unprofitable routes and speeding up a fleet reconfiguration, which would see its daily schedule of flights drop to 300 from 340.
At 10:10 a.m. (0350 GMT), shares in Kingfisher Airlines were trading up 4.33% at Rs 20.50 in a firm market.
The debt-reduction plans to be placed before the board were spelt out in a presentation, which has been reviewed by this paper, to potential financial investors on November 6.
The management is likely to propose a preferential issue of equity to the promoters and other investors, meeting a key demand of banks that are insisting Vijay Mallya, the flamboyant tycoon who owns the airline, infuse equity into the troubled carrier.
Kingfisher is promoted by Mallya's UB Group, which owns United Spirits, India's biggest liquor company. The UB Group will also convert Rs 675 crore of debt into equity as part of the plan to pare debt.
The preferential issue of equity, if approved, will replace a rights issue of Rs 2,000 crore approved by the board in August. Once these plans are approved, Kingfisher will approach banks for up to Rs 500 crore of working capital to buy fuel and pay salaries, according to people familiar with the matter. Kingfisher's lenders have made it clear that the airline would have to come up with a credible business plan.
In case of a financial lease, the airline has to deposit money with the aircraft manufacturer, which can be up to 15% of the total value of the aircraft. Converting it into an operating lease would mean the deposit is paid by the leasing company, which in turn is paid lease rental by the airline.
Sanjay Aggarwal, Kingfisher Airlines CEO, however, refused to comment on the additional working capital but confirmed that the airline was planning to raise funds by changing the nature of lease agreements and selling real estate. "All this exercise is going to reduce our interest costs that are pinching us a lot right now and reduce debt levels to reasonable limit," he said.
But industry insiders doubted if a change in the nature of the lease would raise the kind of money that KFA seemed to be expecting. Further, they say, the Mallya-owned airline's relationship with leasing companies is less than stellar as it has repeatedly defaulted on lease rental payments for some of its aircraft.
According to sources, some of the money that Kingfisher is seeking from the banks will go into reconfiguring the aircraft it wants to use for its full-service operations. These aircraft were earlier used by Kingfisher Red, KFA's defunct low-cost arm.
An earlier restructuring of loans had brought down Kingfisher's debt to Rs 6,500 crore from over Rs 7,500 crore. The lenders - 13 banks, including SBI and ICICI - paid a 61% premium when they got a 23% stake in the airline in April this year, a move that has been panned by independent analysts as they got only one board seat.
The Kingfisher scrip has tanked since then, closing at a new low of Rs 19.65 on Friday. The airline will also look at reduction of manpower costs. "Tough measures have to be taken even if it means manpower reduction for the sake of the remaining 7,500 employees," Aggarwal said.
Kingfisher is looking at a timeline of three to four months when all these initiatives will come together enabling it to keep operational. Some analysts feel the government's outlook has turned favourable as it is now considering allowing foreign airlines to invest in Indian carriers.
"India needs air connectivity and government realizes it is time to step in and also do a stock taking. This might just kind of bail Kingfisher out," said Sharan Lilaney, research analyst at Angel Broking.
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