Kingfisher’s air viability under question

As per Kingfisher’s annual report for the year ended March 31, 2011, the airline is in dire need of funds to keep going. Saddled  with huge debt and mounting losses, the airline has been finding it tough to raise money in the current market conditions. The airline had planned to raise $250-$350 million through an issue of global depositary receipts in January 2011 but it turned out to be a non-starter.

Even though Kingfisher cut its debt through a restructuring by issuing shares to 14 banks which as of today own 29 percent of Kingfisher and has obtained approval from its board for equity infusion, the shareholders are highly worried about the operational sustainability of the airline which has led to  its market value slumping to under $275 million representing a fall of 62 percent since the start of 2011.

In face of the current cash crunch Kingfisher has also postponed deliveries of several Airbus aircraft set for delivery in 2010 and 2011 to 2012 and 2013 and may well cancel some of its orders specially for the Airbus A380s. They have also been defaulting on their government and fuel dues for a long time now.

Given that Kingfisher is a member elect of the OneWorld alliance, it remains to be seen what action the alliance members take to help out Kingfisher. I was planning to bank my miles with Kingfisher hoping to get instant advantage the moment they moved in the alliance but now i’m having second thoughts about the same.

No doubt the airline has a terrific standards of service (although of late they have got some flak on that front too) and is the only 5 star airline from India, poor financial health and utter mismanagement in terms of tackling the low cost carrier onslaught from the likes of Indigo and Spicejet which are now challenging the full service airlines on the lucrative International routes has taken a heavy toll. In contrast Jet Airways has been pretty nimble in tackling the Low Cost carrier onslaught and successfully deployed it low cost brands to manage its market share pretty well. If Kingfisher does not set its house in order in the coming days and take some strong actions to stem its losses, the days of existence may well be numbered.