The current suspension of services by Kingfisher Airlines is a sad outcome for an airline that, at its peak, was one of the finest in the world and set new benchmarks in service standards. It developed a loyal following as a result.
Unfortunately, the airline encountered difficulties due to frequent changes in its business model, the acquisition of Air Deccan, and launch of international services just when the global economy weakened and fuel prices started rising. Today, the company has total debts and various liabilities of $ 2.49 billion, besides accumulated losses of $ 1.9 billion. We estimate that a fully-funded successful turnaround of Kingfisher will require over $ 1 billion, including an immediate capital infusion of $ 600 million. Of this, about $ 350 million needs to be provided by the UB Group, and the balance from banks. The banks seem willing to help – in some ways, they have no option – but they want to see the UB Group take the first step. The above level of funding would allow Kingfisher to operationalise a fleet of up to 20 aircraft. A further $400 million would be required over the next 18 months to support growth and implement a new business plan, which could come either from a foreign airline or another financial investor.
But first, the promoter should take a rational view on whether the airline can realistically be turned around. If a decision is taken to revive the airline, the promoters have to demonstrate that they believe in the business and the required promoter funding should not be delayed. The airline should voluntarily shutdown to reorganise and restructure, which provides the chance for an orderly recovery, howsoever remote. Resuming services immediately will not help. The operating schedule has been downsized to just 10 aircraft, and yet the airline carries the costs of a fleet of 42 aircraft. Limited operations simply cannot expect to generate sufficient cash to meet its fixed obligations.
As Kingfisher’s domestic market share has fallen over the last few months to just 3.2 per cent in August, a shutdown would have minimal impact on capacity and fares. The focus should be on orderly restructuring rather than limping along.
(The author is CEO South Asia, Centre for Asia Pacific Aviation.)
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