Airlines' woes: Ministry to take up issue with PM

The woes of the domestic civil aviation industry will soon land at the doorsteps of the Prime Minister, Dr Manmohan Singh.

The Ministry of Civil Aviation is to soon hold discussions with the Prime Minister on the condition of the industry.

The move comes in the backdrop of the domestic aviation industry expecting to report a loss of Rs 3,500 crore during the first six months of the current fiscal, according to estimates of the Federation of Indian Airlines.

Meanwhile, the cash-strapped Kingfisher Airlines has approached the Government seeking a helping hand in restructuring its finances.

The airline promoter has met with the Ministers for Finance and Civil Aviation and has sought about Rs 300 crore of funded limit and a similar amount to secure LCs as well as bank guarantees. It may be recalled that the Government recently agreed to provide Rs 23,000 crore as equity to Air India over a 10-year period and also provided concessions for the aviation turbine fuel that the airline uplifts.

Meanwhile, the airline CEO, Mr Sanjay Aggarwal, in a statement, said no bailout request has been made to the Government.

“We have only asked our lenders for an increase in limits, due to significant increase in operating costs on account of hike in fuel prices and rupee depreciation,” he said.

The Minister for Civil Aviation, Mr Vayalar Ravi, has spoken to the Finance Minister, Mr Pranab Mukherjee, to provide some relief to the airline.

Lenders' meeting

The move comes even as lenders begin brainstorming on Saturday to consider if the struggling airlines' debt could be restructured, according to a senior banker.

Overall, banks, including SBI, ICICI Bank, IDBI Bank and Punjab National Bank, have an exposure of Rs 7,700 crore to the airline.

Banks may be in a fix when it comes to the private airlines' debt restructuring. The dilemma facing them is that if an asset is restructured for the second time, its asset classification is downgraded to the non-performing category, requiring them to make provisioning.

Banks will be wary of provisioning as it has implications for profitability.

“This is not a simple case of interest rate reduction or re-phasing of loan. The airline will require additional funds. So, the promoter has to chip in with his contribution for any restructuring to materialise,” said the banker.

Additional funding required by the airline is estimated at Rs 2,000 crore. For this to come through, the promoter may have to pump in up to Rs 500 crore.

It may be recalled that when Air India approached the Government a few years ago for additional equity infusion, it was said very clearly that it needs to restructure its finances.