India's Kingfisher in Talks with Foreign Airlines
Indian billionaire Vijay Mallya said that Kingfisher Airlines Ltd. 532747.BY -5.19% was in talks to sell a stake to a foreign carrier after the Indian government this month permitted such investment for the first time.
New Delhi earlier this month allowed foreign airlines to take up to a 49% stake in Indian carriers as part of broader moves to open the economy.Mr. Mallya, who made his fortune in liquor and launched Kingfisher Airlines in 2005, had been pressing the government to allow foreign direct investment, or FDI, in airlines, arguing the sector drastically needs massive capital injections.Many of India's airlines are unprofitable due to cut-throat competition from other local carriers, sky-high fuel costs and expensive airport fees.
Kingfisher's woes have mounted in recent months. The airline has been unable to remain current on its bank debt and owes unpaid taxes to the Indian government, according to the government and Kingfisher. As of March 31, Kingfisher had 80.24 billion rupees ($1.5 billion) in debt.
As its debt problems have deepened, Kingfisher and its employees say it has failed to pay staff wages. The airline also has been forced to cut back drastically on routes."Suffice it to say we are in conversation" with foreign airlines, Mr. Mallya said Wednesday. He declined to name any of the interested parties. "The FDI announcement came just ten days ago, so we can go so fast and not faster."
Mr. Mallya is also looking at selling a stake in his flagship liquor business—a move also likely aimed at helping to solve Kingfisher Airlines' problems, analysts say.On Tuesday, U.K.-based Diageo said it was in talks to buy a stake in Mr. Mallya's United Spirits Ltd., Although both Kingfisher Airlines and United Spirits are separate Mumbai-listed companies, Mr. Mallya has controlling stakes in both firms.
That means he could sell a personal stake in United Spirits to Diageo and use the proceeds to help pare Kingfisher's debt, says Jasdeep Walia, a Mumbai-based analyst at Kotak Securities Ltd.Diageo and United Spirits said Tuesday that there is no certainty the discussions will lead to a deal. Both parties also declined to disclose the size of the stake that Diageo is looking to buy.
Mr. Mallya and other companies he controls together hold a 28% stake in United Spirits, which owns brands such as McDowell's No. 1, Antiquity and Black Dog whiskies. That stake is worth about 41.7 billion rupees.Indian media has reported that Mr. Mallya also is looking at selling his stake in another company, United Breweries Ltd.a joint venture with Netherlands-based company Heineken that makes Kingfisher beer.
Mr. Mallya, who along with companies he controls owns a 50.2% stake in Kingfisher Airlines, has long campaigned for India to allow foreign airlines to enter the sector. Before this month's changes, only foreign investors—but not airlines—were allowed to hold up to a 49% stake in Indian carriers.
Kingfisher's stock fell 69% in 2011 and a further 27% between Jan. 1 and Sept. 14, the day India's government unveiled its plans to allow foreign airlines to invest. Since then, the stock has risen 45% to close Wednesday at 15.70 rupees amid talk of a possible stake sale.
SpiceJet Ltd.another Indian airline, is in talks with private-equity investors to raise at least $50 million through a stake sale, a person involved in the deal said this week. A spokeswoman for SpiceJet declined to comment.Getting foreign airlines interested in Indian carriers could be tough, however, given problems facing the global aviation industry and India's airlines in particular. All the airlines in India, except one—IndiGo—are unprofitable.
Initially, Kingfisher Airlines was seen as a sign of Mr. Mallya's rising power. He holds lavish parties and owns Formula-1 and cricket teams and is a member of India's Parliament.After its launch, Kingfisher bought $5 billion in new planes, including the only Indian order of the Airbus A380 superjumbo. It later took over the then-leading Indian budget carrier Air Deccan.
However, the global economic crisis led to a decline in passenger traffic, while rising jet fuel prices increased costs, forcing Kingfisher to cut back drastically on operations. A Kingfisher spokesman Wednesday said the company is currently flying only 15 of its fleet of 40 planes.