Air India and State Bank of India launch co branded credit cards

By BA Staff

Air India and State Bank of India (SBI) have launched two co-branded credit cards. An Air India SBI Signature Visa card, and an Air India SBI Platinum Visa card.

Highlights of the Air India SBI Signature Card

• 4 points for every Rs 100 spent
• 20 reward points for every Rs. 100 spent on Air India website and booking offices
• Bonus reward points on annual spends of
• Rs. 3 lakh - 20,000 bonus reward points
• Rs. 5 lakh - 40,000 bonus reward points
• Rs. 10 lakh - 90,000 bonus reward points

Reward points can be redeemed for

• Air miles - 1 reward point = 1 Air Mile
• Attractive gifts from the SBI Card Rewards Catalogue

Premium privileges include

• 1 complementary domestic upgrade voucher
• Complementary lounge access

More details here.

Highlights of the Air India SBI Platinum Card

• 2 points for every Rs 100 spent
• 10 reward points for every Rs. 100 spent on Air India website and booking offices
• Bonus reward points on annual spends of
  • 2 lakh- 5,000 bonus reward points
  • 3 lakh- 10,000 bonus reward points
• Reward points can be converted to
  • Air India Air Miles for free air travel
• Premium privileges include complementary lounge access 

More details here

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Opinion: Why are tax-payer funded banks going easy on Kingfisher Airlines loans recovery?

by Devesh Agarwal

The consortium of banks which lent vast sums of money to Vijay Mallya promoted Kingfisher Airlines seem to be making a mockery and charade of recovering almost Rs. 7,000 Crore worth of loans from the airline and its guarantors. The question is why?

As per a Mint report,

SBI, the leader of the creditors’ consortium, has the maximum exposure at Rs.1,600 crore to Kingfisher Airlines, followed by Punjab National Bank (Rs.800 crore), IDBI Bank Ltd (Rs.800 crore), Bank of India (Rs.650 crore), Bank of Baroda (Rs.550 crore), United Bank of India (Rs.430 crore), Central Bank of India (Rs.410 crore), UCO Bank Ltd (Rs.320 crore), Corporation Bank (Rs.310 crore), State Bank of Mysore, an SBI associate bank (Rs.150 crore), Indian Overseas Bank (Rs.140 crore), Federal Bank Ltd (Rs.90 crore), Punjab and Sind Bank (Rs.60 crore) and Axis Bank Ltd (Rs.50 crore).

On reading a recent Business Standard report it appears that the members of the consortium are "wondering" on their various legal options, even as they continue to hold a crucial 2.38% of shares in United Spirits Ltd. (USL) which was recently acquired by global major Diageo.

Equity shares in profitable companies are routinely pledged to lenders as collateral allowing the lenders to sell the shares in case of failure to pay the debt. If the shares are not encashed by selling, there is little point of taking these shares as collateral. Why are the bankers holding on?

Adding intrigue is the fact that in April the Bombay High Court rejected a plea from Mallya's primary holding company United Breweries (Holding) Ltd. (UBHL), and allowed the consortium lenders to sell their shares.

In addition to shares directly pledged, Mallya and UBHL who own shares in both of the UB cash cows. USL, and United Breweries Ltd. (UBL), have given guarantees to the lenders The former in his personal capacity and the latter in a corporate capacity.

The Business Standard report goes on to state the relative simple and easy manner in which banks can and should use these guarantees to recover their debts and shore up their own balance sheets.

According to Sajan Poovayya, managing partner of a leading law firm, lenders can file a summary suit action, as the process of enforcing guarantees is much faster through this route. Simultaneously, the lenders could also move the Debt Recovery Tribunal (DRT) and restrain the promoters from alienating their assets.

Again, why have these "public sector" tax-payer funded banks, stood by, while both Mallya and UBHL sold their shares in USL to liquor major Diageo.

Mr. Poovayya also states

“There have been many instances when guarantors’ assets have been encashed. It’s surprising that Kingfisher lenders have not yet moved on this. I am not sure of the reason for that,”

He is being polite and diplomatic. We might be tempted to say "the banks can still file a summary suit and enforce the guarantees". That unfortunately, is easier said than done. India is still reeling from the after effects of the Vodafone debacle. Queering the pitch for Diageo at this stage, after the deal is sealed, will seal India's reputation in the foreign investment market.

However, all is not lost. Mallya and UBHL own 37.5% of United Breweries Ltd. (UBL), the country's largest beer company, which has a market capitalisation of about Rs. 21,600 crores, thus making their shares worth over Rs. 8,000 crore. More than enough to cover the 7,000 crore debts of the airline. Via the guarantees, the lenders have recourse to these funds, but the question is why are these banks standing by?

Again the simple answer that would come to mind would be the enormous political clout wielded by Dr. Mallya. However, in the murky world where alcobev (alcoholic beverages) and politics meet, things are not what they seem.

The Kingfisher saga is too public that it can be buried by sheer political pressure, there has to be a financial hook.

A hypothesis for consideration.

With the governing UPA lurching from one scam to another, the economy is in doldrums. Alcobevs are a huge source of revenue, especially for the states. With control of almost 50% of the market, Mallya can turn off the revenue tap in a heartbeat. Alcoholics will suffer withdrawal symptoms, but the government will go in to shock.

In a subtle move, Mallya can dispute a few contentious rulings of the state excise authorities in court. The time taken to decide with the following appellate process and the resultant lack of income, will be a death blow to the finances of almost any state.

With elections looming, the UPA has already commenced adding more misery to the Indian economy with its populist schemes. Cash is required to fund these adventures in profligacy. The coffers are empty and the government's credit card is maxed out.

Another financial hook is the fact that alcohol and the slush funds within the industry are the lifeblood of political campaigns in India; and elections are coming. Should the banks make a move, and force Mallya to liquidate stock, control of UBL will go to current partner Heineken, who is a lot less likely to play in that murky alcohol fuelled world of politics.

Furthermore, this is a last cash cow, and hell will freeze over, before Mallya gives up control.

I welcome your comments and thoughts.

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DGCA made a bad financial decision in shutting down Kingfisher Airlines

Earlier this month, now shutdown Kingfisher Airlines, once India’s largest private domestic carrier, reported a huge net pre-tax loss of Rs. 1115.5 Crore for the second quarter of Fiscal Year 2012-13. The performance was by far and away the poorest quarterly financial performance out of any Indian airline in the last few years, though that is to be expected given their shutdown at the end of the quarter.

Revenue performance was abysmal, falling 87.1% on a year over year basis (keeping in mind that FY 11-12’s Q2 was the last quarter of full Kingfisher operations – the first really big capacity cuts hit in November of that year). Fuel expenses were better year over year on a per ASM basis (mirroring the performance of the general industry), and operating margins as a whole did not decline as much as one would have expected (from -98% to -127.5%), though they were obviously atrocious. The main culprit was, as usual, interest, finance, and restructuring charges which contributed the remaining 850 odd Crores worth of net loss. But at this point, the drivers behind Kingfisher’s poor financial performance are well known.

What is more interesting to consider is the question of whether the DGCA made the correct move in shutting down Kingfisher pending a recovery plan. Keep in mind that the Indian government, through its network of state owned banks, is the primary holder of Kingfisher’s more than US $1.4 billion worth of debt. Thus it is in the government’s best interest for Kingfisher to minimize its losses, thereby limiting the further accumulation of debt as well as making Kingfisher slightly more attractive (though still a money pit) for foreign investors. While the DGCA is not operating in response to the same incentives as the general government of India (GOI) and State Bank of India, the two can certainly act in concert to minimize the impact on the public. First, let us simply throw away the ridiculous assertion that financial troubles would drive safety concerns at Kingfisher; this sort of event rarely occurs outside of the hellholes of the Third World, and the incentives for Kingfisher to skimp on safety are simply not in place. Notice that even as it cut the rest of its expenses by hook or crook, the level of maintenance expenses per available seat kilometer remained constant for Kingfisher over the past year. Any airline knows that the minute it compromises safety is the minute it loses viability as an airline in the eyes of the public. But even absent this factor, it would still make sense for the DGCA to shut down Kingfisher if the airline loses more money operating than shut down.

Since the financial and “restructuring” costs will remain regardless of whether Kingfisher carries passengers or not, we can focus our analysis entirely on the operating results on the balance sheet. Based on the data presented in the quarterly results, we can conclude that shutting down has cost Kingfisher around Rs. 220 Crore worth of revenue for Q3 (typically among the strongest Indian quarters). On the flip side, Rs. 160 Crore worth of fuel expenses are no longer accrued, as are a certain percentage (around 35% based on the auditor’s notes to Kingfisher’s financial statement) of the “other operating expenses.” Remaining expenses, including aircraft lease rentals, maintenance, depreciation and amortization, and longer term ground leases will still be accrued. So the total savings that Kingfisher gets from not operating is around Rs. 215 Crore, whereas they are forgoing Rs. 220 Crore worth of potential revenue, not to mention the benefits of operating in increasing the attractiveness to foreign investors. Thus the math suggests that the DGCA made a bad financial decision in shutting down Kingfisher.

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Opinion: Kingfisher Airlines' license suspension actually helps Vijay Mallya

On Saturday India's civil aviation minister Ajit Singh, announced that aviation regulator, the DGCA had suspended the operating permit of Kingfisher Airlines, after the carrier failed to respond to their show-cause notice.

With mountains of unpaid debts, the airline has been on life-support for some time now. Unpaid employees have been striking since October 1, resulting in a suspension of all flight operations by the Dr. Vijay Mallya promoted airline.

While many proclaimed their eulogies, the PR folks at the airline, called the suspension temporary

"We would like to clarify that this is not a cancellation but a temporary suspension which is valid only till such time that we submit a concrete and reliable revival plan to the satisfaction of DGCA."

The alcoholic beverages (alcobev) business in India is at the intersection of public relations, sexually aspirational marketing, board-room machinations, manoeuvring around the hundreds of contradicting laws, gratification and slush funds of administrators and politicians.

Call me a conspiracy theorist, but I refuse to accept that a man who made his billions in this tricky business, will just fold up his airline, risking his personal assets and those of the UB Group, which have been given as surety on the loans to the airline.

Going out on a limb, I suspect, this suspension may be one last, desperate move by team Mallya, to scare the stakeholders, employees, banks, vendors, and government, into saving the airline.

The striking employees who have been unpaid for seven months have been taking a hard line. With the management offering only one month salary, reconciliation meetings till now have proved futile. Ahead of their meeting with the management on Monday, the suspension suddenly gave the employees a preview of cold, hard reality. If the airline goes under, not only will they not get their unpaid salaries, but they will have to look for new jobs in a shrinking Indian aviation market.

The banks which are refusing to lend any more funds, demanding the Mallya bring in about $500 million (Rs. 2,500 Crore) to re-capitalise the airline, were given a preview of Kingfisher going under. Banks have collateral for only about 10% of their loan exposure. A lengthy, expensive, legal recovery process is not a desirable situation for them. Recovery proceedings may also bring to the surface undesirable information and questions, about potential political influence in these government owned banks granting loans to the airline.

The vendors, especially the airports, the fuel companies, and lessors, who will have to commence lengthy and expensive litigation to recover their dues if Kingfisher goes under. The mess will get further complicated due to cross litigation between the various vendors. For example the lessors who own the aircraft will have to pay the dues of airports before they can take away their aircraft.

The Government, by ordering the suspension or cancellation of Kingfisher's permit, has given Mallya the perfect escape route. He can now dump the entire problem in to the government's lap, saying "What can I do? I did my utmost to save the airline, but the government cancelled the permit. Now they must deal with the consequences."

The spin doctors are UB Group are masters in PR. We recently experienced how well they diverted the media's attention away from the Rs. 60 Cr. humanitarian loan extended by banks. Get a Kingfisher stewardess out in protest saying she is out on the streets, and all the TV news channels will cover it from head to toe. In no time, public opinion will be turned, that the government must be humane and take care of those poor unpaid employees who are now out on the streets.

Last, but not the least, is us passengers and tax payers. Thanks to capacity reductions, fares are already up 20% in the last few months, and over 50% compared to last year. With the Dussera festival this week, kicking off the peak travel season till mid January, and Kingfisher out of the picture, fares will rise to astronomical levels. There will be a public outcry and the government will be forced to defend the situation with the Kingfisher spin doctors saying "See, we tried to save the airline. The government closed us down. These fare increases are due to that."

The situation is being unfolded exactly how the King of Good Times wants it.

What are your thoughts on the suspension of Kingfisher's permit? On my conspirator theory? Your thoughts and comments are always welcome.

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Kingfisher Airlines: Diverting the media's attention away from things that matter

For the last week or so we are overloaded with the media's fascination about the financial troubles at Kingfisher Airlines and its flamboyant Chairman Dr. Vijay Mallya, and his less than flamboyant, and far less street smart son Sidhartha.

Like the famous wild dogs of Africa, which hunts in packs, the media had descended en mass on the sorrowful suicide of the wife of a Kingfisher engineer.

For two days we heard and we read only about the suicide. Then we heard that the banks in a "humanitarian" act, had lent another Rs. 60 Crore to Kingfisher to pay salaries, given proof to the theory, sorrow does sometimes cause a loss of rational thinking.

With a monthly salary bill of Rs. 20 Crore, Rs. 60 Crore will pay about three of the seven months of overdue salary to Kingfisher employees. Instead, Kingfisher said it can only pay one and a half months. So what was the carrier going to do with the balance Rs. 30 Crore? Pour it down the veritable Kingfisher black hole? No story has come out in any of the major print or electronic media questioning this hocus-pocus.

Instead of chasing the money, credit should be given to the Kingfisher strategists. They have successfully, and cleverly, diverted the media's attention an e-mail from airline CEO Sanjay Aggarwal to the airline's employees with the same "come back to work" content with no mention of salaries, and to the fact that Kingfisher was selling tickets in violation of a DGCA diktat.

The airline strategy team surely have a job reserved at a magic show a'la Houdini or PC Sorcar.

I would like to ask a question of these bankers.

When you know Kingfishers less than stellar financial management techniques, why not ask the airline for a salary statement and give the salary directly to the employees?

Isn't this a sort of reverse wage garnishing? A common practice for banks and creditors to recover their dues? and this method will allow for the humanitarian act to truly reach its intended beneficiaries, instead of being spent on more bikini clad babes.

And to my dear and esteemed friends in the media, I recount the sage advice given by "Deep Throat" to Bob Woodward and Carl Bernstein; "Follow the money".

As usual, your thoughts, dear readers, are requested, via a comment.

Image courtesy Wikipedia

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Opinion: A date of ignominy in the Kingfisher Airline calendar

2010 Kingfisher Calendar. Copyright KingfisherWorld

Kingfisher is known for its super-sexy swimsuit calendar, featuring some of the most beautiful women in the world, and Kingfisher Airline's Chairman Dr. Vijay Mallya's son, Sidhartha, may love cavorting on the beach with them, but yesterday, October 4, 2012, witnessed a tragedy, and was, to borrow the words of FDR, a date that will live in infamy for the financially imploding airline.

The wife of one its employees committed suicide due to non-payment of her husband's salary for over six months.

Sushmita Chakraborti was not a model on a fancy calendar, nor would either of the Mallya father or son, like to cavort on the beach with her; she was the poor, 45 year old wife of a retired Indian Air Force officer, Manas Chakraborti, who is working, salary unpaid, as an engineer with Kingfisher Airlines. Living in a LIG (low income group) housing colony in airport suburb of Dwarka, in New Delhi, where she hung herself, she was the mother of an 18 year old college going son.

CNN-IBN reports, in her suicide note, Sushmita wrote,

"My husband works with Kingfisher where they have not paid him salary for the last six months. We are in acute financial crisis and so I am committing suicide"

Mrs. Chakraborti's suicide has stained in blood the Kingfisher Airline's image, and forever damaged the already tarnished the Kingfisher brand, once valued at over Rs. 1,000 Crore. The contagion is already spreading. The Reserve Bank of India has already instructed banks not to use the brand as collateral for loans.

Her death is in stark contrast to the extravagant uber-lavish lifestyle of the Mallyas, which has been loudly condemned across the country, yet shows no sign of abating. Even as Sushmita was dying, Dr. Vijay Mallya was overseas, reportedly on a vacation, leaving the airline CEO, Sanjay Aggarwal, to meet with Government officials, Kingfisher pilots, engineers, and other employees, with the same helpless platitudes that has plagued the airline for over a year. He too, he says, has not been paid his salary.

While many Kingfisher employees held candlelight vigils around the nation, in support of the grieving family, CNN-IBN reported, the airline’s company secretary Bharath Raghavan resigned.

Yesterday too, the airline extended the lockout to October 12, 2012, blaming the employees for "illegally" striking. Talk about the pot calling the kettle black.

Last yesterday, in a clear sign of the political clout of Vijay Mallya, the Income Tax department agreed to unfreeze the airline's bank accounts containing about Rs. 60 Crore. The authorities had frozen these accounts in May this year, when Kingfisher failed to deposit the withheld income taxes, deducted from employees salaries, since March 2009. This apart from non payment of service tax to the Excise department. It is important to note, that there is no sign that either Kingfisher Airlines or Dr. Mallya have cleared this liability.

Continuing the clout, the banks, who are owned more than Rs. 8,000 Crore by Kingfisher, and who, by their own admission, do not have collateral worth more than 10% of the loans, have agreed to release this money towards payment of employee salaries. Now, whether this money will be disbursed to the unpaid employees or squandered in more fancy lifestyle displays, is not known.

As this tumultuous week comes to a close, we offer our sincerest condolences to the Chakraborti family, and condemn the actions of the airline, its leader, and all his political benefactors who have allowed circumstances to degrade in to an abyss, resulting in this tragic act of desperation. Yesterday was a day of ignominy for you Dr. Mallya.

Comments are welcome. Messages of support are welcome. Any defence of Kingfisher or Dr. Vijay Mallya is very welcome. And last but not the least, please do cast your vote in our survey whether Kingfisher Airlines should be allowed to continue or be closed.

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Survey: The Kingfisher Airlines drama continues. Is the airline ready for euthanasia?

Employees of Kingfisher Airlines have finally reached a breaking point. The airline, blaming the employees has declared a lockout

Kingfisher Airlines Limited today announced that following a series of protracted and unabated incidents of violence, criminal intimidation, assault, wrongful restraint and other illegal acts including refraining from attending work, by a small section of recalcitrant employees which were all unnecessary and unprovoked, the management has been forced to declare a partial lock-out at the airline, effective immediately.

May be the airline should look at the insensitive tweets of Sidhartha Mallya, son of Kingfisher Chairman Dr. Vijay Mallya.

Just spent the morning playing volleyball with 12 bikini clad models on the beach...now I understand why people hate me. HA!
— Sid Mallya (@sidharthamallya) September 29, 2012

Rubbing a high flying lifestyle, in to the face of employees whose salaries remain unpaid for months, will surely achieve disastrous results.

The Directorate General of Civil Aviation (DGCA) summoning the Kingfisher management to a meeting on Tuesday, which happened to be Gandhi Jayanti, a national holiday, shows us, the seriousness of the government, which till now has been treating Dr. Mallya with kid gloves.

Even the Civil Aviation minister Ajit Singh, a well wisher of the airline, warned that the government establishment could no longer ignore frequent disruptions and non-adherence to published flight schedules, reports The Economic Times (ET).

"Disruption of (flight) schedule has become an issue with Kingfisher Airlines. While the issue of passenger safety is paramount and cannot be jeopardised and DGCA needs to be satisfied that there are no safety concerns, Kingfisher has to also ensure that they operate flights as per the schedule they have submitted to the DGCA," Singh told ET over phone.

To rub salt in to the wounds, the Kingfisher management arrived in Delhi on board a flight of arch-rival IndiGo. Kingfisher CEO Sanjay Aggarwal and Executive Vice President Hitesh Patel had an hour’s meeting with DGCA chief Arun Mishra. FirstPost reports, Aggarwal told the regulator, Kingfisher is loosing Rs. 80 million (Rs. 8 Cr., $1.5 mn) per day and also presented ten points. Most of them we have heard before. During the lockout, the airline cuts its losses in half, says Mint. This raises the question, why not keep the airline in hibernation till a foreign investor is found? Two immediate answers are; (1) Given its massive losses and accumulated debt, it is not very certain how attractive an investment Kingfisher is, despite the claims of the company and (2) With each passing day, by not operating its schedule, the airline is loosing its most desired assets, the routes and peak-time landing and parking slots at the major airports.

In the meeting, the airline executives reportedly told the DGCA, Kingfisher is in talks with the various authorities for unfreezing multiple bank accounts, holding about Rs 600 million, frozen due to non-payment of various taxes and mandatory dues, which includes the with-holding taxes deducted on employees salaries, but not remitted to the government. An act, which invites immediate trips to jail for mere taxpayers like you and me, but not the Chairman sahib. 

In the meeting Mishra gave an ultimatum, that the airline must give a time-line for paying employees, apart from a “satisfactory and realistic” operational preparedness plan, before it can get permission to fly again, as per a report in Business Standard.

Mr. Mishra went to warn other airlines not to profit from the suspension of Kingfisher flights, but market forces are already taking effect, and fares are rising, thanks to panic buying for the upcoming holiday period by concerned travellers

Aggarwal who apparently has not been paid salary himself was left to defend the airline while the Chairman was nowhere to be seen. He was confident the airline, which has a monthly wage bill of Rs. 200 million, would be able to pay the pending salaries in the next few days. The reason for Aggarwal's confidence? May be a deal between United Spirits and Diageo, which DNA reports should be announced tomorrow. However, some other reports suggest that Mallya will use the proceeds of this sale to retire those liabilities that have his personal guarantee. Is he getting ready to finally bail out of Kingfisher Airlines? Or once his guarantees are retired, he threatens the banks to walk away from Kingfisher unless additional funding is provided?

The Economic Times also reports that Mallya has borrowed Rs. 525 Cr. from HDFC Bank against his ancestral property, but it is not clear whether this money has been used to fund Kingfisher Airlines in any way. Is Dr. Mallya reduced to selling the family jewels to wriggle out of the situation?

Despite the regulator not being satisfied, according to the Mint, Mishra has indicated there is no risk of the airline being shut down, since they have more than the minimum five aircraft.

This surely begs the question, why is the airline still being propped up? Is it to protect the books of the various government owned banks, led by State Bank of India, who are owed over Rs. 80 billion (Rs. 8,000 Cr.), and whose books will be awash with red if the airline goes under? Is it because of the government's policy, which does not allow for quick or easy liquidation of failed companies, thanks to a misplaced pride to demonstrate, that Indian companies do not fail?

Can this airline be saved? Or is it time for this airline to be euthanised? Share your views via the survey below and via comments.

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Income tax department re-freezes Kingfisher Airline's bank accounts

The income tax department has frozen two of Kingfisher Airline's bank accounts for alleged non-payment of dues.

However the airline has clarified in a statement

The IT department attached two of our bank accounts on May 24th which was not in accordance with the speaking order of the Hon'ble IT Appelate tribunal during the hearing.

Subsequently, in a written order of May 25th the tribunal set aside the entire demand made by the IT assessing officer. As such there are no tax dues to be currently paid and the attachment orders on two bank accounts have to be lifted.

So the financially strapped carrier will face a few days of trouble till the income tax department will send a release instruction to the banks, something it is loathe to do.

The airline had an income tax outstanding of about Rs. 370 Crore which is essentially the taxes it withheld from employee salaries as TDS (tax deduction at source), but has not remitted to the department.

In March this year, Kingfisher had withdrawn from the international airline body IATA and took back its deposits of around $8 million. It used these funds to deposit Rs. 44 Crore (approx. $8.8 million at March exchange rates) with the income tax department which caused the Income Tax Tribunal to un-freeze its bank accounts. The airline had also promised to make weekly payment in instalments of Rs. 9 crore.

The airline is now operating on a highly truncated schedule using only 16 aircraft and has dropped from being the second largest domestic carrier in India to the smallest.

The airline also has estimated outstandings of Rs. 40 Crore payable to the service tax department.

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Kingfisher Airlines repeats fund raising plans - a move to ease market concerns?

Dr. Vijay Mallya promoted Kingfisher Airlines released this statement today. The conversion between Indian Rupees and US Dollar at a rate of Rs.47:$1 has been added by us in italics.

The Board of Kingfisher Airlines Limited, at its meeting held today, approved, subject to shareholders approval, an increase in the authorised Equity Share Capital from Rs. 900 crores [approx $192 million] to Rs. 1,650 crores [approx 352 million] and an increase in the authorised Preference Share Capital from Rs.100 crores [$21.3 million] to Rs. 2,600 crores [$553.2 million].

The Company will immediately seek to raise up to US Dollars 250 million [Rs. 1175 Crore] by way of GDR [global depository receipts] and a further Rs. 500 crores [$106.4 million] through a domestic offering subject to necessary regulatory approvals. This funding is expected to be completed within the next 3-4 months.

At the meeting of the Board of Directors of United Breweries (Holdings) Limited, the Holding Company of Kingfisher Airlines, it was resolved that a sum of approximately Rs. 650 crores [$138.29 million] provided as loans to Kingfisher Airlines be converted into Preference Share Capital.

The financials of Kingfisher Airlines are expected to be significantly strengthened by these initiatives.

Today's decisions appear to be just a re-state of earlier attempts by the airline to raise funds.

The airline has accumulated debt exceeding Rs. 7400 Crore (approx $1.58 billion) and reported a lower net loss (down 23%) of Rs.1,647.22 crore ($350.5 million) for the fiscal ended March. There is a significant erosion of the net worth of the carrier.

The airline is not alone in its financial woes. Fellow full-service carriers Jet Airways had debt of Rs. 13,759.50 crore ($2.93 billion) as of 31 March. National carrier Air India’s debt exposure was Rs. 17,000 crore ($3.62 billion) in May.

Industry sources feel that investors are more comfortable placing their funds with either Jet Airways or low fare carrier IndiGo whose initial public offering is expected within the next 12 months. However, with the government of India prohibiting foreign carriers from owning any stake in an Indian airline, it will be difficult for Kingfisher airlines to raise external commercial borrowing without a significant dilution of promoter equity. Said one source

Despite efforts, Kingfisher still does not enjoy a reputation of a lean and mean airline. If the airline does manage to raise the funds, Dr. Mallya's share will fall well below 40%; and that is a very uncomfortable position for a promoter to be in.

In May, while the Economic Times was reporting IDBI bank recalling its loans from Kingfisher Airlines, the carrier had approached its lender the State Bank of India to re-structure its debt outside the corporate debt restructuring cell. As per banking guidelines a debt re-structuring within the cell implies the loan is considered bad, and this would all but erase any hopes of the airline to raise additional debt.

In June, the State Bank of India, approached the nation's central bank, the Reserve Bank of India (RBI) with a special dispensation request to restructure the over $10 billion debt of Indian carriers after the RBI refused the bank's request to advance a loan of Rs. 2,000 Crore to Kingfisher Airlines. In July, the central bank instructed 13 of the nation's largest banks to form a common policy and consortia for debt restructuring rather than provide on- time relief to individual companies.

The airline's parent, the UB Group, has been busy selling non-core assets and business to raise funds and pare down overall debt. The lack of funds injection by the group till now, gave rise to doubts on how much additional airline burden were the shareholders of UB Group willing to bear. The move by United Breweries (Holdings) of converting Rs. 650 crores provided as loans to the airline, appears to be converting loans, that may never return, in to equity which will at least provide some buttress when external lenders demand a share of the airline.

All is not lost though. The airline has reported improved financial results for the quarter ended June 30. In its investor presentation, the airline is showing the benefits of its aggressive cost cutting. However, we do not share the airline's optimism on the benefits it will gain by its early induction in to the oneworld alliance. The alliance will surely squeeze far more concessions out of a financially weaker Kingfisher than it will concede in benefits.

While we hope we are wrong, for now we cannot shake off the feeling that this release appears to be just another attempt by the airline to ease market concerns on its precarious financial condition.

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