Moneycontrol
Apr 12, 2012 10:21 PM IST | Source: CNBC

Kingfisher needs foreign investor to keep flying: Pro

Despite efforts to turn itself around India's cash-strapped Kingfisher Airlines will not survive for long unless there is a last-minute bailout by a White Knight investor, an aviation industry expert tells CNBC.

Kingfisher needs foreign investor to keep flying: Pro

Despite efforts to turn itself around India's cash-strapped Kingfisher Airlines will not survive for long unless there is a last-minute bailout by a White Knight investor, an aviation industry expert tells CNBC.

"They [Kingfisher] have lost all confidence from the banks, the markets and their passengers. They're tottering towards their last days unless a foreign investor buys a stake in it," said Siva Govindasamy, Asia Managing Editor at aviation publication Flightglobal.


Kingfisher, which has debt of USD 1.3 billion, ran into trouble in March after banks refused to lend it more money for its day-to-day operations. It then ran foul of India's tax authorities, which led to its bank accounts being frozen temporarily.


In a bid to save costs, the airline unveiled a turnaround plan, saying it would stop international flights, cut some domestic routes, and ground a large part of its fleet.


But Govindasamy says cost cutting alone will not help the airline, as the Indian airline industry as a whole is suffering from serious structural problems like an unsustainable price war and government patronage of the national carrier.


Kingfisher cannot raise fares as it and its rivals are locked in a price war with ailing state carrier Air India. "The market is already at an artificially low level when it comes to fares, mainly because of Air India which keeps those fares very low," Govindasamy said.


He adds that the Indian government - which last month unveiled a $800 million bailout package for Air India that has not turned in a profit since 2007 - is effectively subsidizing the low fares and harming the entire Indian aviation sector.


"The government needs to step out of the Indian airline industry and let market forces come in," he said.


© 2012 CNBC.com

 

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