Negotiations to bring down lease rental fails
The highly leveraged debt burden under which UB Group-owned Kingfisher Airlines is creaking under, is starting to have a telling effect on the company.
Within a month of it starting to cancel as much as 60 flights per day from its schedule of 340 flights on a daily basis, Kingfisher Airlines on Thursday said that two of its aircraft is being taken back a lessor – AerCap Aviation, a major global player in aircraft leasing based in Netherlands and listed on the New York Stock Exchange.
According to Kingfisher Airlines, AerCap had two aircraft coming up for renewal in the next 3 months and they could not agree on mutually acceptable extension terms. “The aircraft will soon be in a MRO for preparation for redelivery. We are adding a brand new aircraft to the fleet in December to replace one of these two,” a spokesperson for Kingfisher Airlines said. AerCap on its part said that they do not comment on business relationships with customers. Kingfisher Airlines management added that more aircraft are due for lease renewal within the first quarter of CY12.
Senior management professionals at UB Group said that they were discussing for a 10 per cent reduction in lease rental for the renewal on which they could not agree. On an average 11-13 per cent of the aircraft cost is paid as lease rental depending on the age of the aircraft.
Kingfisher Airline has a fleet of 66 aircraft mostly from the Airbus family and the rest from ATR. In addition to leasing from AerCap, Kingfisher Airlines has leasing agreements with AWAS, ACG and Fly Leasing. While around 12 aircraft is owned by Kingfisher Airlines, the rest of the fleet are under operational lease, which the company is trying hard to convert it into financial lease. As part of this, Kingfisher Airline is hoping to get back around $200 million it has paid as deposit and redeploy them towards debt settlements, which is at Rs 7,500 crore on an average rate of 18 per cent. Kingfisher Airlines is also looking at sale and lease back option of the 12 aircraft it owns and try to settle incremental debt on it books, as well.
The airline is maintaining that they are carrying out a reconfiguration to fit in more seats in the economy class and this initiative will require up to 3 aircraft to be out of service over the next three months at any one time for this exercise to be completed. “It will reduce the number of fleet configurations from 7 to 3, improving operational flexibility. This initiative will add more seats to the fleet, improving revenue production of each aircraft,” Sanjay Aggarwal, CEO, Kingfisher Airline had claimed.
Jasdeep Walia, an analyst with Kotak Institutional Equities, has recently said that the debt is likely to be as high was Rs 10,000 crore and the company has to have a large infusion of equity and not just Rs 400-500 crore addition in working capital. The management of Kingfisher Airlines has been trying in vain to raise as much as Rs 2000 crore through the equity route for the past nearly three years and has had to resort to debt.
According to the management of Kingfisher Airlines the current situation has been precipitated due to the steep depreciation of the Rupee against the US dollar and the spike in the cost of crude as among the key reasons which has taken the wind out of its sail. “When we went into debt restructuring plan, the Rupee was around Rs 40 to a US dollar and now it is Rs 50 to a US dollar. The oil was around $80-90 per barrel and it has sharply moved to $115 a barrel. We are asking the banks to take this reality into perspective and extend another Rs 400 crore working capital to tide over current crisis until equity infusion happens,” the official added.
The airline, hit by these factors and ballooning debt and a high interest payout which is wreaking havoc with cash flows, posted around Rs 450 crore loss during second quarter of Fy12, double than the losses posted during the corresponding quarter of last fiscal.
Kingfisher Airline, post this snow-balling effect on its operations has been forced to cancel as much 50-75 flights on a daily basis from its schedules of 340 flights on a daily basis. The duration of cancellation has also been extended and now disruptions will be there till end of March 2012 from the earlier estimated which was till December 2011.
