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Friday 24 August 2012

Kinghfisher Airlines may have to shut down operations

Kinghfisher Airlines may have to shut down operations if $600 million cash is not infused in the next two months, the Centre for Asia Pacific Aviation (CAPA) said on Friday.

"Kingfisher is able to continue as a result of daily infusions of funding by the promoter. However, with mounting losses the situation is unsustainable. In Q1 (first quarter, 2012-13) the promoters invested $133.9 million, but this barely allows the airline to survive," CAPA said in a report on the Indian airline industry's performance in the first quarter of the current fiscal.

"A viable turnaround is unrealistic without a significant re-capitalisation of the airline. Without an investment of approximately $600 million in the next 30-60 days, Kingfisher faces the prospect of an operational shutdown, possibly temporarily, to allow it to restructure and re-organise," it said.

According to the advisory company, a restructuring of the airline will require banks to take a significant hit as they have huge exposure to bad debt given to the carrier.

The airline also faces frequent labour unrest with one group or the other of employees going on flash strike demanding payment of salaries and other reimbursements.

The airline had the lowest market share in July which stood at 3.4 per cent.
The report estimated the airline to make a total loss of $220-$260 million in 2012-13. The company had reported a net loss of Rs.650.78 crore ($117 million) for the quarter ended June 30, 2012.

"The uncertainly regarding the scale of Kingfisher's operations means that any outlook for the carrier's financial is very difficult to estimate, and its full year loss could be higher than expected," the report said.

On Air India, CAPA said the airline would be able to cut losses for 2012-13 to around $one billion on improved domestic operations. It had earlier estimated the loss to be of $1.3 billion.

AI's domestic revenue increased 6 per cent in the quarter under review from the corresponding quarter of last fiscal. It also achieved third highest domestic market share in August at 18.2 per cent.

"The national carrier needs to take advantage of the current domestic market conditions to focus on its restructuring by further reducing its cost base, improving productivity and solving its outstanding HR issues," the report said.
CAPA said the four private players - SpiceJet, IndiGo, GoAir and Jet Airways - are on track to achieve $200 million profit for 2012-13.

"In the first quarter ended June 30, these four private carriers are estimated to have achieved a profit of approximately $40 million," CAPA added.

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