MUMBAI: Kingfisher Airlines needs a capital infusion to remain viable, its auditors have said, pushing the carrier's shares to near historic lows on Thursday, amid fierce competition in a fast-growing airline sector with big expansion plans.
Loss-making Kingfisher, controlled by flamboyant liquor tycoon Vijay Mallya, disputed any question of its survival, but the airline has fallen short in its efforts to raise equity and early this year ceded a stake to its lenders as part of a debt reorganization.
"After its debt restructuring people thought there could be some relief, but what happened is that even the general economy went into a slowdown. All in all we are bearish on aviation," said Jagannadham Thunuguntla, research head at SMC Capital.
Indian airlines have aggressive growth plans, with orders worth $50 billion in the pipeline to Boeing and Airbus
as an economy growing at about 8 percent spurs business travel and low-cost carriers make air travel affordable for a middle class long-accustomed to traveling by rail.
But cut-throat competition and rising costs, including for fuel, means most big Indian carriers are loss-making, with state-owned Air India operating on government life support.
In Kingfisher's annual report for the year ended March 31, auditors B.K. Ramadhyani & Co noted that its financial statements had "been prepared on a going concern basis, notwithstanding the fact that its net worth is completely eroded."
It added, "the appropriateness of the said basis is interalia dependent on the company's ability to infuse requisite funds for meeting its obligations."
While the annual report is dated Aug. 25, a story on the report ran on the front page of Thursday's Economic Times newspaper, which market watchers blamed for a drop of as much as 5 percent in the shares. the stock trimmed losses to close at 25.2 rupees, down 4 percent.
Kingfisher, whose market value has shrivelled to under $275 million as its stock has fallen 62 percent since the start of 2011, said lenders have independently confirmed its viability as a going concern.
"It is incorrect to say that Kingfisher Airlines' auditors have raised serious doubts about the survival of the airline," it said in an e-mail to Reuters.
"During the year, RBI (the Reserve Bank of India) had directed the banks to independently assess the viability of KFA (Kingfisher) and this was in fact, carried out by the lenders with the assistance of SBI Capital Markets confirming that KFA is viable i.e. as a going concern," the airline added.
The auditor said that Kingfisher had defaulted and delayed on loan and interest payments, and had not regularly deposited dues to authorities for certain taxes and other items.
Kingfisher said despite some delays in remitting some statutory dues, there are now no demands that are unpaid. It also said its loans are considered by banks to be performing.
"Whatever the auditor has said is not very new ... it's talking about infusion of fresh equity, and this is what the lenders had also stipulated long time back," said A.P. Verma, deputy managing director of State Bank of India , which led a consortium to restructure Kingfisher's debt.
"Unless the long-term funds come, unless they bring down the leverage, their problems will continue," Verma said.
IN SEARCH OF EQUITY
Kingfisher, India's No. 2 carrier by market share, was, like larger rival Jet Airways , launched as a premium operator and touts itself as India's "only five-star airline." Both have stepped up their low-cost offerings to compete with fast-growing no-frills rivals IndiGo and SpiceJet .
"If at all in India any vertical of the airline industry can make business it is the low cost, no frills model, as the Indian consumer is cost-conscious. Kingfisher being a premium model has not found it very easy," Thunuguntla said.
Mallya, who also heads United Spirits and owns a Formula One racing team, was not available for comment.
Kingfisher had planned to raise $250-$350 million through an issue of global depositary receipts in January, but no deal has been forthcoming. The company also tried to bring in private equity investment in 2008 and 2009, but was not successful.
In late August, Kingfisher said its board approved a rights issue of shares to raise up to 20 billion rupees ($434 million). Analysts say raising funds for an airline will be difficult in the current market.
The airline has not turned a profit since going public in 2008 through an acquisition. It has posted cumulative losses since then of 42.83 billion rupees .
Kingfisher has postponed deliveries of several Airbus aircraft set for delivery in 2010 and 2011 to 2012 and 2013.
Mallya, often referred to as India's Richard Branson, has said the carrier was in no hurry to take delivery of five Airbus
A380 superjumbos it has on order and could push their arrival beyond 2016. .
Earlier this year, Kingfisher cut its debt through a restructuring by issuing shares to 14 banks. Now, the banks including State Bank of India and ICICI Bank together own 29 percent of Kingfisher. That exercise converted almost 12 billion rupees of loans into equity and its debt now stands at about 60 billion rupees.
Kingfisher said long term funds worth 4.75 billion rupees has been infused into the firm since the start of the year.
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