Zero-value Kingfisher won’t get a buyer

 

FP Staff Mar 21, 2012

Kingfisher Airlines, which is set to shut all international operations by April 10, is not likely to get any buyers as there is no equity value in the airline, said Neeraj Monga, EVP at Veritas Investment Research today.

In an exclusive interview with CNBC-TV18, Monga said the cash-strapped airline’s business operations will only shrink further going forward due to its missed targets, high debt level, unpaid employees and funding problems.

“There is no equity value in this business. The only way the equity value can come back is if there was less debt on this business,” Monga said. And the only way Kingfisher can ever turnaround or become a zero-debt company is by declaring itself bankrupt or by restructuring its massive debt.

Veritas believes the only way out for Mallya is to shut the airline down as no investor would want to put money in an asset with a poor brand positioning and massive obligations. AP

But the only way this can be achieved is by Vijay Mallyagiving up ownership and control over the airline. Even Mallya’s United Spirits can’t save the airline because a significant proportion of  UB Holding had already been pledged to the banks in order to secure the loans of Kingfisher, which have now turned into non-performing assets or bad loans. Hence United Spirits doesn’t have the cash to either pay interest  or the principal amount, leave alone employee salaries! The airline will only be capitalised once a new entity comes in, pointed out Veritas’ Monga.

Moreover, the shutting down of Kingfisher is also good for the sector as other aviation stocks will perform well  as seen with Jet Airways yesterday and pricing power might come back to the market for the airlines that do stay afloat.

So what’s the best case scenario for Mallya’s airline?

Veritas believes the only way out for Mallya  is to shut the airline down as no investor would want to put money in an asset with a  poor brand positioning and massive obligations.

“The airline was setup for 65 aircraft and around 400 flights a day. So, they have massive employee base and unpaid tax dues. Why would anybody want to enter into this mess at this time,” asks Monga?