State Bank of India revamps Air India again

SBI revamped AIR India’s loans to an average 15 year tenure as per a recent plan approved by RBI the company alone accounts for more than half of Indian aviation’s debt overhang and over $1.5 bln of working capital and $3 bln in term loans were restructured in the latest exercise. The bank accepted CCPS issue against the working Capital loans allowing the airline to pay the bank thru redeemable cumulative preference shares, the bank still not becoming an equity holder for the sole reason that it is a government owned airline.

Air India is also getting Govt equity of $5 bln over 10 years with $1.35 bln issued this year ( we still use USDINR=50 as rupee tries to make a 48-53 range)

Something tells me that will only pay for the airline’s immediate default and its daily operational losses will continue nothing changing about the management and operational staff habits that make for the demise of the airline. In the mean time fare hikes by private airlines will happen as highly efficient companies like Jet and Indigo bleed and or resort to sale / lease back despite being anointed full service airlines liable to charging “full fares” for their service. Low fare airlines like Spicejet and premium experience jugglers like Kingfisher remain stuck in the middle, having adopted most global best practices and created sumptuous fare without being able to carry home any profit

Energy costs pulling the Indian skies apart

Kingfisher airlines, taxing in Bangalore Airpo...
Image via Wikipedia

Kingfisher Airlines is on the verge of a breakdown on all counts, with losses of more than INR 7 bln every quarter and 1 in 3 flights canceled from the planned 469 flights by the airline, with only 36 announced as rescheduled and none noted to the industry regulator.

Jet Airways losses are the worst in its history at INR 7.13 bln and Spicejet has already reported earlier in the day at a INR 6 bln in losses , the two being in profits albeit less than 1 bln in the September of 2010.

Unfortunately, the only thing you can pin down is apparently something you cannot control and that is the 50% of the costs going to fuel, which goes thru even more hikes than at the retail end. ATF prices are a lowest of INR 61k per kl in Delhi. Energy costs are INR 14.8 bln for Jet Airways on Sales of INR 333.2 bln, and a even higher INR 4.78 bln for Spicejet on sales of just INR 7.2 bln

Airlines woes have led to losses after losses since October 2010, as losses of INR 29.5 bln were reported by indian airline companies last fiscal and have already reported INR 33lbn in losses in the first half of the year

Aviation as a sector needs a lot of gestation and a belief in cash profits. Foreign investments can help and first and foremost the regulators and the Ministry needs to help the beleaguered airline, with only INR 60 bln or $1.2 bln in debt and a fleet of 140 aircraft, it would be unfair for the airline to leave midway. Vijay Mallya’s Kingfisher has asked for more operational credit to run the airline even as dues mount uop for ground handling and fuel with the state oil companies. Some of its staff seems to have gone AWOL yesterday forcing it to cut more flights.

However that the government has to help is also prima facie an issue with india’s bankruptcy protection laws from the examples of GM and United Airlines that has come back multiple times from bankruptcy and earned fair profits. KFA had already restrcutured part of its loans and mismanagement if any has to be monitored and weeded out. Banks already own 23% of Kingfisher. UB spirits is processing a sale of more equity to its global spirits partner Diageo

But all these are just bemused observations as Aviation remains a requirement and unavailability of cheap and extensive airline connections in a country like ours or without quality from being a state carrier make our enterprise no better than that of Greece and its wayward ways. and Indi ais much better off. One cannot dole out aid at will or single out Kingfisher for its cabin amenities at this juncture as the cost charts show up the problem of keeping fares low in an incendiary fuel price on the ticker. Till last year, more may not have been said, but operational efficiency at all the three airlines mentioned can be seen to have been maintained and no cash saving avenues seem to have been unexplored, leading to an inevitable uptick in fares which governments have not alllowed them in the last 2-3 years as also rules of flying low fare competition.

(mint) KFA will now run 300 flights daily to 54 destinations.

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