Kingfisher, unable to secure meaningful investment pledges after a two-year roadshow has this week bowed to the inevitable: cut back aspirations, cut back low cost plans and pump more of that beer money into what is left. Kingfisher secured guarantees worth over Rs 6,100 crore (US$1.255bn) from Chairman Vijay Mallya to reduce debt last year it turns out. In return for providing the additional level of collateral for its funding needs, the company paid a little over Rs 50 crore (US$12.8m) to Vijay Mallya as “guarantee and security commission” during the same period. It also turns out that Vijay Mallya had also stumped-up guarantees totalling Rs 2,799.56 crore (US$576m) in the previous fiscal year (2009-10). Vijay Mallya told shareholders during his address at the AGM this week that he "personally stepped in to provide a third level of comfort to the lenders who have been extremely supportive of Kingfisher". Mallya said the company has implemented a debt-recast programme in the form of a moratorium on repayment, extended tenor of loans and reduced interest rates but also converted 30% of their outstanding loans into preference and equity capital to lower debt liabilities. Kingfisher is continuing to work with the consortium of banks with a view to further reduce interest costs. The airline’s total debt before the recast stood at Rs 7,651.12 crore and came down to Rs 6,007.30 crore after the recast.
The question is how long will Kingfisher beer money continue to be poured into the airline? Vijay Mallya seems to consider the whole thing a matter of pride and that should ensure that the money flows but we do know one thing for sure and we have mentioned it before – the Kingfisher Airline business model does not work. The airline cannot make money as it is and the whole thing is essentially an ego trip – so do you want to invest? Best bet is to look to Aer Lingus in the first instance.
