India's struggling Kingfisher Airlines is banking for survival on an expected government decision to allow foreign airlines to pick up stakes in domestic carriers. But experts say this may not be enough to save the cash-squeezed company.
Its shares surged last week on hopes that the cabinet could soon agree to give foreign carriers the green light to invest - a move that could throw a lifeline to the airline controlled by billionaire liquor baron Vijay Mallya.
But Kingfisher, which has never made a profit since it was created in 2005, is in urgent need of as much as $600 million to stay in business, the Centre for Asia Pacific Aviation, a consultancy firm, said.
"Without these funds, its survival is extremely challenging," said CAPA's South Asia chief executive Kapil Kaul.
Kingfisher, which has shut down its overseas operations and slashed domestic flights, desperately needs the cash infusion to pay the millions of dollars it owes to suppliers, lenders and other creditors.
Mallya is strongly rooting for the new foreign direct investment (FDI) policy which could be Kingfisher's last chance of survival. But the policy move is "like the government calling his bluff", said Sonam Udasi, head of research with IDBI Capital.
Udasi said foreign investors may show interest in some Indian airlines on hopes they will start making money at some point, but better-managed carriers such as the low-cost SpiceJet would likely be more attractive.
Kaul added that investor interest in India's embattled aviation industry was "limited" due to high fuel taxes and poor airline balance sheets. India logged the second-best air traffic growth at 12.3 percent in the world after Brazil in February, according to global airline body IATA. But despite the fast-growing market five of India's six main airlines are losing money due to high fuel costs, fierce competition, price wars and an economic slowdown.
Debt-laden national carrier Air India is among those facing a financial crisis, while rival Jet Airways is also hit by losses. Just one Indian airline, the budget carrier IndiGo, is profitable.
This month, Kingfisher started to pay its staff salaries which were pending for months, after its bank accounts were unfrozen, but it still owes more tax dues and also has to pay airports and clear fuel bills.
The airline will also need a "comprehensive restructuring with a revamped top management and board", Kaul told AFP.
The reputation of the airline is in tatters after it more than halved its daily flights to about 120 operated by 20 aircraft, down from a peak of over 250 flights with 64 planes.
Mallya, who also runs a profitable brewery business, has confirmed "interest" from prospective buyers to invest in Kingfisher, which could help reduce its $1.5 billion net debt.
Analysts have mentioned IAG, the parent company of British Airways, and Etihad Airways, Abu Dhabi's flagship carrier, as companies that might be interested in taking a stake but neither has made its interest public.
Foreign airlines are currently barred from holding stakes in Indian airlines though other overseas investors can hold up to 49 percent.
"Kingfisher's future investor must have deep pockets for the industry is likely to face more years of losses," said an aviation analyst with a Mumbai brokerage, who declined to be named.
The company's net loss widened sharply to 4.44 billion rupees ($88 million) in the three months to December from a loss of 2.54 billion rupees a year earlier.
The analyst said Mallya may soon have to relinquish control of the airline in favour of other investors, including banks - among the airline's main shareholders - while retaining only a small stake.
Mallya, known as the "King of Good Times" for his flamboyant lifestyle, erred by trying to merge the low-cost Air Deccan brand, which he bought out, with the premium Kingfisher, according to observers.
"Had he continued with Kingfisher alone and not Air Deccan, he would have been better off," said IDBI's Udasi. "Low-cost is not his game."