Kingfisher says it is talks with Etihad

Talks on to buy 35% stake for a little over Rs 3000 cr

Kingfisher has said it is in talks with Abu Dhabi-based Etihad Airways for a stake sale which could revive the troubled airline's fortune. Executives from  Etihad Airways visited Kingfisher offices in Mumbai and Bangalore last week amidst ongoing talks raising hopes of a deal.

Kingfisher stock was rose 5% on Tuesday following a media report that a deal between the two airlines will be announced next week. The report said Etihad had agreed to pick up 48% in the airline for Rs 3000 crore. While Etihad offered no specific comment for the story, its chief executive officer James Hogan had told the media last week that India and China were now key regions of focus for the airline. He said, Etihad  was in due diligence with a "couple" of Indian airlines. When asked about a possible deal he had replied  "Ask me in a couple of weeks.''

 

Kingfisher informed the Bombay Stock Exchange it was in discussions with various investors including Etihad but said no agreement was signed. Kingfisher's market capitalisation is Rs 1,267 crore at current price and UB group owns little over 35% stake. The share price closed at Rs 15.67 up 5%.

A deal will give Kingfisher chairman Vijay Mallya much needed funds to kickstart the airline but it may not be as easy as it seems.

Etihad - Smallest of big 3 Gulf carriers operating in India.

Flies fewer passengers than Emirates, Qatar Airways
Alliance with Indian carrier will help increase its footprint, feed its global network
Over last 2 years the airline has followed massive expansion strategy based on acquisitions in airlines around the world.

Kingfisher - Deal will bring in funds vital for survival of airline.

Its operations are shut for past 2 months.

Dues to various vendors, employees run into thousands of crores.

Also stands to benefit from commercial alliances, technical co-operation after signing up with foreign airline.

Etihad and Jet Airways are in discussions for a stake sale for the past few months and on Tuesday the two airlines cemented the relationship announcing an expansion of their existing code-share agreement to include the Abu Dhabi-Paris route. The existing agreement covering India-Abu Dhabi routes was signed in 2008.

Secondly, Kingfisher's operational and financial problems are far from over. Infact analysts including Kapil Kaul of Centre for Asia Pacific Aviation have stated that Kingfisher has an outside chance to secure foreign direct investment and any deal will be complex and will require significant capital infusion by promoters and concurrence of the banks. According to CAPA Kingfisher needs immediate infusion of $600 million and additional $300-400 million over next 18 months.

Kingfisher's operations are shut for the last two months and its permit has been suspended as the airline failed to present a credible revival plan. Its permit is due for renewal later this month. The airline has a staggering debt of over Rs 7,000 crore and has not paid employees for the past six months.

The airline's problems were compounded on Monday when the service tax department seized an ATR plane in Mumbai for tax default. The airline owes the department around Rs 200 crore and last week an ATR plane parked in Mumbai was detained as part of enforcement order. The department is likely to seize another plane.

While Kingfisher confirmed that its plane was seized, it gave no explanation  when it will clear the dues. The airline in its response to the department questioned the detention. Kingfisher said it had leased the plane and it was not on its books and said the airline was entitled for damages and compensation caused due to detention.