KF-Deccan: Focus will be on equity, not debt

Mallya riding on Deccan

With combined accumulated losses of around Rs 2,000 crore, the new entity created by the merger of unlisted Kingfisher Airlines with Deccan Aviation will have many strengths, but its balance sheet will not be one of them.

According to sources, the merged airline will look at equity rather than debt to raise funds going forward.

"Debt will not be easy to raise on the existing balance sheet," said an investment banking source, who was of the view that the losses of Kingfisher Airlines would not be brought into Deccan either.

Vijay Mallya holds 13.57 per cent in Kingfisher Airlines and 77.52 per cent is held by UB Holdings. While actual numbers are hard to come by for Kingfisher, it is estimated to have lost Rs 577 crore in 2006-07.

In 2005-06, when it started its operations, losses were about Rs 250 crore, mentioned in a docket submitted by the airline to the US department of transportation.

Most of its losses have been funded through loans taken either from UB Holdings or loans supported by UB Holdings.

Kingfisher Airlines' former CFO A Raghunathan, in response to a query some time ago, had said that the airline had got Rs 500 crore in equity, loans and guarantees from the group. "Obviously, our own balance sheet is not strong enough. The group's backing is a pillar for us," he had said.

Air Deccan, which has been struggling with growing losses ever since it started, is running out of cash almost as soon as it raises it. Following its initial public offer in May 2006, it had raised $100 million through Investec Bank in September 2006 and Rs 300-350 crore debt. As the airline's losses continued to mount, it was forced to sell a 26 per cent stake to Vijay Mallya for Rs 550 crore. "However, at the rate it is going, I suspect it will soon need more funds infusion," said an aviation industry analyst. The combined entity will also need large capital infusion for the proposed international forays by the two brands.