Etihad 'buys stake in debt-ridden Indian carrier Kingfisher'

New Delhi: Etihad Airways has entered into a $553 million (Rs30 billion, Dh2.06 billion) buyout of a 48 per cent stake in debt-ridden Indian carrier Kingfisher Airlines (KFA), highly placed sources in Kingfisher confirmed on Tuesday.

Etihad will initially buy a 30 per cent holding this month and a further 18 per cent by next August. However, the formal announcement for the same is likely to come on December 18, the 57th birthday of Kingfisher chairman Vijay Mallya.

According to sources, before the deal was worked out, Etihad and Kingfisher met twice in Abu Dhabi in October this year. Last week, Mallya met the Director-General of Civil Aviation (DGCA) and informed the regulator that the company is in talks with an airline. He also mentioned that a revival plan will soon be submitted to the regulator.

Prakash Mirpuri, Vice-President, Corporate Communications, United Breweries (UB) group, refused to divulge much details but expected the year to end on a positive note. “I would not like to comment on speculation but I can tell you that we are likely to have a wonderful Christmas. Hope you would appreciate that being a listed company, one is bound with certain governance-related legislations. However, without any degree of definiteness, it will be prudent on my part to just say things are good with us,” Mirpuri told the Gulf News.

Etihad, which carried 8.3 million passengers in 2011, already holds stakes in Virgin Australia, Air Berlin, Air Seychelles and Aer Lingus.

Beleaguered Kingfisher’s debt stands at around $2.5 billion. KFA requires a minimum of Rs30 billion to fly again, owing Rs600-700 million in salaries to employees, Rs9.5 billion to oil companies, Rs5 billion to airports and Rs70 billion to a consortium of 17 banks led by the State Bank of India (SBI). Lenders led by SBI want Mallya to infuse capital after which they will put in more money. The lenders were expected to meet representatives of Kingfisher on December 8, but the meeting was deferred to December 17.

SBI Managing Director and Chief Financial Officer Diwakar Gupta told Gulf News that the banks were “trying to do everything to find an amicable solution”. Kingfisher owes Rs15 billion to SBI.

However, sources in the Indian carrier said that with Etihad’s stake, Kingfisher is likely to get a further funding from other lenders.

“After Etihad infuses Rs30 billion into KFA, banks are likely to offer fresh loans to the troubled airline,” they said adding that Kingfisher’s last request for a loan of Rs40 billion was denied by the consortium of banks.

Shares of Kingfisher on Tuesday rose to hit their 5 per cent upper circuit at Rs15.67 reacting to the news. Jet Airways was up 1.7 per cent and benchmark Sensex 0.7 per cent.

Etihad was earlier eyeing to buy a stake in Jet Airways, supposedly the largest Indian airline carrying maximum flyers.

“Etihad Airways has identified equity investments in other airlines as an important evolution of its successful partnership strategy. Such investments will be made where Etihad Airways believes the commercial prospects are strong, where there are like-minded business philosophies, and where such commitment will be welcomed,” Etihad said in an emailed statement.

Kingfisher is going through a rough patch with the flights grounded for over two months. The airline’s employees continue to languish without salary. Kingfisher had promised three months’ salary (March-May) before Diwali but only a handful received it for May. Grounded since October, the airline is yet to submit a revival plan to the regulator.

Kingfisher’s staff ended a strike in October over unpaid wages but the airline fleet remained grounded after DGCA suspended its licence. Recently, the staff threatened Mallya to take him to the regulator for non-payment of dues.

Launched in 2005, Kingfisher was once India’s second-largest airline by domestic market share. But ever since September when the government allowed foreign airlines to purchase stakes of up to 49 per cent in domestic carriers, Mallya was looking for a foreign buyer in order to save his airline from collapse.

Aviation consultancy firm Centre for Asia Pacific Aviation had said in an October research report that in order to become a prospective investment target, Kingfisher will first require significant recapitalisation of at least $600 million and a restructuring of its debt, and a new management team.