Without FDI, Kingfisher's survival is extremely doubtful

INDIA’S struggling Kingfisher Airlines is banking for survival on an expected government decision to allow foreign airlines to pick up stakes in domestic carriers.

But experts say this may not be enough to save the cash-squeezed company.

Its shares surged last week on hopes that the cabinet could soon agree to give foreign carriers the green light to invest - a move that could throw a lifeline to the airline controlled by billionaire liquor baron Vijay Mallya.

But Kingfisher, which has never made a profit since it was created in 2005, is in urgent need of as much as $600m (£376.90m) to stay in business, the Centre for Asia Pacific Aviation, a consultancy firm, said.

“Without these funds, its survival is extremely challenging,” said CAPA’s South Asia chief executive Kapil Kaul.

Kingfisher, which has shut down its overseas operations and slashed domestic flights, desperately needs the cash infusion to pay the millions of dollars it owes to suppliers, lenders and other creditors.

Mallya is strongly rooting for the new foreign direct investment (FDI) policy which could be Kingfisher’s last chance of survival.

But the policy move is “like the government calling his bluff”, said Sonam Udasi, head of research with IDBI Capital.

Udasi said foreign investors may show interest in some Indian airlines on hopes they will start making money at some point, but better-managed carriers such as the low-cost SpiceJet would likely be more attractive.

Kaul added that investor interest in India’s embattled aviation industry was “limited” due to high fuel taxes and poor airline balance sheets.

India logged the second-best air traffic growth at 12.3 per cent in the world after Brazil in February, according to global airline body IATA.

But despite the fast-growing market five of India’s six main airlines are losing money due to high fuel costs, fierce competition, price wars and an economic slowdown.

Debt-laden national carrier Air India is among those facing a financial crisis, while rival Jet Airways is also hit by losses. Just one Indian airline, the budget carrier IndiGo, is profitable.

This month, Kingfisher started to pay its staff salaries which were pending for months, after its bank accounts were unfrozen, but it still owes more tax dues and also has to pay airports and clear fuel bills.

The airline will also need a “comprehensive restructuring with a revamped top management and board”, Kaul told reporters.

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