Kingfisher Airlines, which has been locked in for the past two weeks in intense protracted discussions with a battery of bankers, led by State Bank of India, has proposed an Rs 400-crore interest cost reduction per year through a series of structured steps. This will be coupled with total operational improvements worth almost Rs 1,800 crore through reconfiguration of aircraft, striking discount pacts with a host of vendors and effecting a 10 per cent lease rental reduction.
A senior board level member of the UB Group told Business Standard the Kingfisher Airlines management had been able to come to some sort of agreement on most of the terms, except for the differences with oil marketing companies. “The banks are understanding. The aircraft lessors, too, are in the frame, as they have seen similar situations across the world with various airline companies. The oil marketing companies are the ones with whom we have not been able to come to agreement yet,” the official said. Aviation turbine fuel accounts for 40 per cent of Kingfisher Airlines’ expenditure. To overcome this, it is attempting to directly import fuel and avoid paying sales tax levied by various states, which Kingfisher Airlines has been terming “exorbitant”.
Kingfisher has been maintaining the steep depreciation of the rupee against the dollar and the spike in the cost of crude are among the key reasons which have taken the wind out of its sail. “When we went into debt restructuring plan, the rupee was around Rs 40 to a dollar and now, it is Rs 50. The fuel was around $80-90 per barrel and it has sharply moved to $115. We are asking the banks to take this reality into perspective and extend another Rs 400-crore working capital to tide over the current crisis until equity infusion happens,” the official added.
| FINDING A WAY OUT | |
| WHAT DOES KINGFISHER PROPOSE TO BANKS (Rs crore) | |
| Recover maintenance reserve money (to pay debt) Cut 13.5 per cent interest cost on Total interest saving | 1,000 1,000 135 |
| Pay back Rs 450-crore debt through: Lease/rent out Kingfisher House in Mumbai Sale & lease back of aircraft - Return of A340 aircraft - Change in background margin - Total interest saving | 90 180 90 90 61 |
| Convert rupee loan to foreign currency loan. Plans to reduce interest to 8% from 13.5% Total interest saving | 1,200 66 |
equity (interest saved 12%)
(interest saved 15%)
Total saving from Promoters converting part
debt into equity
33
87
Converting optionally convertible debentures worth
(interest saved 8%)
57
| OPERATIONAL RESTRUCTURING (Rs crore) | |
| Reconfiguration & Business Model Change Impact to seat reconfiguration and business model change. Reduce aircraft configuration, Increase tariffs by Rs 600 due to rise in fuel price. Increase tariffs by phasing out LCC Rs 500 | 1,395 |
| Discounts from fuel, airport, ground handling, Engineering & Maintenance, Catering and other vendors (4% of current rates) | 286 |
| Lease Rental reduction (10% from current rental) | 115 |
| Total operational improvements per year | 1,796 |
The airline, hit by these factors, ballooning debt and a high interest payout, which is wreaking havoc with cash flows, posted Rs 450 crore in losses during the second quarter.
