* Kingfisher shares hit all-time low on cancellations
* Aviation minister to speak with finance minister on bank
* Kingfisher says cutting 40 daily flights
* Airline says does not see risk to its future viability
(Updates with company comments)
By Aniruddha Basu and Sanjeev Choudhary
MUMBAI/NEW DELHI, Nov 11 India's civil
aviation minister sought to cool a crisis over debt-hobbled
Kingfisher Airlines on Friday as investors bailed out,
alarmed by scores of flight cancellations and reports that its
leasing firms wanted their planes back.
Named after the country's most-famous beer, Kingfisher has
climbed to become India's No. 2 private carrier since it began
operations in 2005 as the economy boomed and forecasts for
passenger growth reached for the skies.
But it has become one of the main casualties of high fuel
costs and a fierce price war between a handful of airlines
which, between them, have ordered hundreds of aircraft for
delivery over the next decade in an ambitious bet on the future.
The Centre for Asia Pacific Aviation (CAPA) has forecast a
record $2.5-$3 billion loss for Indian airlines for the year
ending March 2012, with state-run Air India alone likely to
account for more than half of it.
As shares in Kingfisher slumped by as much as 18 percent to
their lowest level since being launched by flamboyant liquor
baron Vijay Mallya, Civil Aviation Minister Vayalar Ravi said he
would approach the finance minister to seek emergency bank
assistance for the cash-strapped company.
Late on Friday, Kingfisher Chief Executive Sanjay Aggarwal
said the carrier had not made any bailout request to the
government, and that it was complying with credit terms and
payment arrangements with its vendors.
"Kingfisher does not see any risk to its future or long term
viability. The whole Indian aviation industry is struggling due
to high costs and lower yields. We are no exception," he said.
The country's main opposition party made clear on Friday it
would oppose a state bailout for Kingfisher, which means the
pressure will remain on Mallya's United Breweries (Holdings)
to keep the airline in business.
BANK SHARES SUFFER
Shares in India's top two lenders, State Bank of India
and ICICI Bank, which each hold more than 5
percent of Kingfisher, fell on concern their loans could sour.
"I think it will be difficult for the UB Group to bail them
out again and again," said an aviation analyst at a domestic
brokerage, who asked not to be named.
"The airline needs fresh funds and there will be a question
mark on its survival if it is unable to raise the funds."
The Economic Times reported that some companies that had
lent aircraft to Kingfisher planned to take them back, and in
Europe two industry sources said on Thursday that the carrier
was set to cancel orders for two A340 Airbus aircraft.
India's aviation regulator, meanwhile, said it was starting
financial surveillance of all airlines to ensure there was no
corner-cutting on safety and said it had asked Kingfisher to
explain why they had cut back drastically on scheduled flights.
Kingfisher said it was dropping unprofitable routes and
speeding up a fleet reconfiguration, which would see its daily
schedule of flights drop to 300 from 340. It apologised to the
regulator for not informing it about the cancellations.
Kingfisher, which said it has been a few days late paying
salaries in the last two or three months, is one of India's most
successful brands, ranked 116 by Campaign magazine in its list
of the top 1,000 Asia brands for 2011.
"Like Air India, Kingfisher is also a difficult duck to
drown," said Rajan Mehra, executive director at the Asia Pacific
Academy for Aviation and Hospitality.
"They are in very bad shape, but whether they will sink I am
not too sure. Mallya will have to take some very serious and
stern steps," he said.
Rising crude prices, a depreciating rupee and cut-throat
competition have eroded airlines' ability to raise fares despite
passenger growth of about 19 percent this year.
LOW-COST SERVICE TO GO
Six weeks ago Kingfisher announced plans to recast its
business model by doing away with its low-cost service.
Kingfisher shares have lost 70 percent of their value so far
this year. The airline, which listed when it bought out budget
airline, Air Deccan in 2008, has never made a profit.
Its auditors noted in the annual report this year that the
firm needs extra cash to survive. Kingfisher had aimed to raise
$250-$350 million through an issue of global depositary receipts
in January but did not follow through on the plan. It also tried
to attract private equity investment in 2008 and 2009 but no
deal was forthcoming.
Earlier this year, Kingfisher cut its debt through a
restructuring by issuing shares to 14 banks, including State
Bank of India and ICICI. Its current debt is about $1.2 billion.
Last week it said it had written to banks for further help.
"The only way out is they sell a stake to a foreign airline
company - if the government passes the rule anytime soon, which
I think they can, given the circumstances of the whole
industry," said Sharan Lillaney, an analyst with Angel Broking.
Foreign airlines may not invest in Indian carriers, a rule
the government has said is likely to be scrapped.
State-run Air India lost 70 billion rupees ($1.39 billion)
before tax in the year that ended in March. Jet Airways
, India's top carrier, and SpiceJet posted
losses of 7.13 billion and 2.4 billion rupees, respectively, for
the September quarter. [ID:nL3E7MB1QK
(Additional reporting by Swati Pandey; Writing by John
Chalmers; Editing by Rosemary Arackaparambil and Tony Munroe)