But airline can still turn around, say analysts

The financial situation in Kingfisher Airlines continues to be grave with the airline's third quarter results highlighting its stark financial position.

Earlier, the airline had been involved in a spat with its auditors, who had raised concerns about its ability to carry on operations.

On Thursday the airline, which has been finding it hard to make salary payments, pay aircraft lessors and repay bank loans, announced that its net losses had risen by about 75 per cent to Rs 444. 26 crore for quarter ended December 31, 2011, from Rs 253.69 crore previously.

The airline, which has seen a flight of personnel, including about 20 pilots leaving recently to join low cost airline, IndiGo, has also been running severely depleted operations with about a third of its fleet either grounded or leased aircraft returned.

Banks tighten the screw

What is compounding the financial crisis in the airline is that the consortium of 13 banks led by State Bank of India, which holds about 23 per cent of Kingfisher equity, has refused to provide more funds till financial restructuring was done. SBI, which has an exposure of Rs 1,458 crore, has declared Kingfisher a non-performing asset.

Sales fell by close to a quarter to Rs 1,342 crore, while interest charges rose to Rs 350 crore from Rs 340 crore a year earlier. The company operated 13 per cent fewer flights in the quarter and seat occupancy also fell to 75 per cent.

However, some industry experts feel that despite the bad financial performance, it might still not be the end of the road for Kingfisher Airlines.

The three listed companies – Jet Airways, Kingfisher and SpiceJet – are likely to continue attracting investor interest despite their losses.

Positive signs

Analysts feel that not only are the fundamentals of the market strong, with the number of people with disposable income willing to spend on flying increasing, but the Government has also been sending positive signals in the recent past, showing its intent to help the private sector airlines.

“Domestic airlines were allowed to operate more flights internationally, a move which should help them source aviation turbine fuel at lower rates and achieve better average realisation. The Government has also allowed airlines to directly import aviation turbine fuel and also indicated that foreign airlines could soon be allowed into the domestic sector. Good inherent demand, rich consumers and Government support are making it difficult for most investors to ignore the Indian aviation market,” said Mr Amrit Pandurangi, Senior Director of Deloitte in India.

Even for Kingfisher, Mr Dhiraj Mathur, Executive Director and Head of National Aerospace and Defense Practice, PwC, remains optimistic.

“With the restructuring in operations already underway, if Kingfisher Airlines' working capital requirements are met and it is able to import aviation fuel directly then it should be able to turn around.”

While both refused to speak on Kingfisher Airlines' future, other analysts felt that the private sector airline should still be able to get a suitor as long as the valuation was “modest and realistic.”

Another reason for investor interest in the sector is that yields in the domestic market have started to firm up.

“The average airline ticket price is moving northward, the number of passengers flown is increasing month-on-month and airlines are pulling up their socks on the operational efficiency front. So if a particular sector or aircraft operating on a sector is not making money it is immediately withdrawn, which was not the case earlier,” an analyst said.

Some analysts feel that the sector is slightly crowded and there is scope for further consolidation, something, which many feel, is bound to happen in the next two to three years.

ashphadnis@thehindu.co.in

(This article was published on February 16, 2012)
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