The Indian aviation industry is sinking under huge debt
October 28, 2009
Air India is looking for additional equity of Rs5,000 crore over three years and it promises that it will cut down its fleet size from 146 aircraft to 95 over the next two years. It also plans to reduce costs by Rs3,000 crore and enhance revenue by Rs2,000 crore annually. Indian Airlines has planned a big expansion to buy new fleet and wanted to raise equity funding of Rs3,000 crore and debt funding of Rs6,000 crore.
The private sector is also raising lots of debt and equity without proper cash flow in place. Recently, shareholders of Jet Airways (turnover Rs12,000 crore in 2008-09) approved the fund-starved airline’s plan to raise up to $400 million (Rs1,920 crore). The airline is desperately raising the money to avoid loan defaults. Already burdened with high debt of Rs16,000 crore, will it be able to pay back the money from its revenues?
All airlines are making continuous large losses every year. Jet has suffered net losses of Rs406 crore for the quarter ended 30 September 2009, as compared to losses of Rs384 crore in the previous quarter.
Kingfisher Airlines (turnover Rs5,500 crore) plans to raise up to $175 million (Rs840 crore) before March next year through rights issue and global depository receipts (GDRs). Kingfisher already has total debt of about Rs6,000 crore (Rs60 billion). This includes about Rs1,800 crore (Rs18 billion) given in advance to aircraft manufacturers against future delivery of planes. Kingfisher Airlines owes over Rs950 crore (Rs9.50 billion) to State-run oil companies in unpaid jet fuel bills. The company has been making losses for the past four years. In the last quarter ended September 2009, it has made losses of Rs418 crore.
Industry losses over the past three years have been Rs14,000 crore. IATA Director General and CEO Giovanni Bisignani has said that Indian aviation industry is estimated to suffer a collective loss of $1.50 billion in 2009. The problem will get bigger when these companies will have to take delivery of new planes. More money will have to be raised even as the debt equity ratio stands at 5:1. One analyst says that money being poured into the aviation sector is very similar to what the banks lent to the steel sector during 1995-98. In the end the banks have had to restructure loans and waive interest.