Aviation: Kingfisher's finances cause concern

Kingfisher, owned by United Breweries run by Vijay Mallya, has been causing concern for some time. The group has had several financial issues in the past few years and some have criticised Mallya for his purchase and running of F1 team Force India using "sponsorship" from the group - it being suggested that the Group's money has been spent on a largely private ego trip.

As Kingfisher's financial position has worsened, its share of the Indian travel market has slumped. It has cut capacity and grounded aircraft.

It has an excellent reputation, with five stars awarded by Skytrax, one of only seven airlines worldwide to achieve that accolade. It was admitted to the OneWorld Alliance just over a year ago and has proved a valuable feeder for other OneWorld members. But its membership has not been full membership. OneWorld describes it as a "member elect." In December 2011, Mallya said that it would be admitted to full membership as from 10 February 2012. That now looks in doubt. Indeed, some newspapers are this morning reporting that Kingfisher has "shelved" its plans to join the alliance in some cases quoting a Mallya statement made Friday "In [the] light of the many priorities centred around Kingfisher Airlines' recapitalisation efforts, we felt it prudent to defer our entry into the alliance for a little while," he said in a statement issued jointly with OneWorld.

The airline has, on order, a number of Airbus A330-200 aircraft with which it has plans to build a larger long-haul network. But there are serious question marks over whether it can pay for them and build the business quickly enough in the face of substantial competition.

Rival AirAsia X has pulled out of its Malaysia-India route citing costs and bureaucratic issues.

Kingfisher's problems have been compounded by dubious business practices including failing to hand over to the government taxes deducted from employees' pay. That was after a debt restructuring was completed in 2010.

The company has seen increasing losses over a number of consecutive periods. The demand for payment of the unpaid taxes by the Indian government had a serious effect on cash flow.

Even so, the good-news machine kept up appearances until Friday 3rd February 2012 when Kingfisher was thrown out of the OneWorld clearing house system under which airlines pay the margin on code-shares. Kingfisher was deemed to be in default under its obligations to other OneWorld airlines.

As fuel suppliers began to demand payment in advance for bunkering arrangements, fears have begun to grow that maintenance may be compromised. In the 1970s, Braniff saw a sudden loss of passenger confidence after reports that the first thing to go in a financial crisis is maintenance. It was never established that that had in fact happened but it was enough to unnerve potential passengers. Indian state officials are reportedly considering grounding the airline due to such fears, even though there is no evidence of them being true.

In January, Kingfisher's pilots started industrial action demanding higher pay.

Kingfisher has been trying to raise both equity and debt but with around a quarter of its shares now held by banks and its principal lender State Bank of India saying that it will not increase debt unless there is a substantial equity injection, things look bleak.

In the meantime, OneWorld CEO issued a statement making it clear that the airline is causing considerable concern. He said: " We have been working closely with Kingfisher Airlines over the past months and it has become increasingly clear recently that the airline needs more time to resolve the financial issues it is confronting before it can be welcomed into OneWorld."