Kingfisher in talks with banks to secure higher credit limit

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Kingfisher Airlines has reiterated that it is not seeking a bail-out from the Indian government, but confirmed that it is in talks with banks to secure a higher credit limit for its day-to-day working capital.

The statement comes amid growing speculation about the airline's financial viability after it cancelled a slew of services, with Indian newspapers saying that leasing companies wanted to take back their aircraft and that Kingfisher itself may be on the verge of collapse as a result of mounting losses.

Kingfisher CEO Sanjay Aggarwal said in the statement that the airline had asked for bank limits to be raised because of a spike in operating costs, mainly due to higher fuel prices and the devaluation of the Indian rupee. Cash-flow problems have resulted in delays in the payment of salaries, but Kingfisher said it had settled these. Aggarwal added that the airline is complying with all credit terms and payment arrangements it has with its vendors.

"Kingfisher does not see any risk to its future or long-term viability. The whole Indian aviation industry is struggling due to high costs and lower yields. We are no exception," said Aggarwal. "Like any other prudent business, we are taking steps to improve our financial performance."

He added that to counter these pressures, the airline has decided to "rationalise its network, drop unprofitable flights and expedite its fleet reconfiguration".

Aggarwal said that after revising its schedule, Kingfisher is offering 300 daily flights connecting 54 cities versus its previous schedule of 340 flights. The airline apologised to the Directorate General of Civil Aviation (DGCA) for not informing it earlier of the cancellations. But he reiterated that contrary to media reports, no flights have been cancelled because of a lack of pilots or other staff.

"The attrition of 100 pilots did not happen overnight. Kingfisher has a sufficient number of pilots and a robust pipeline of new pilots to continue to operate its schedule," said Aggarwal.

He added that the reconfiguration initiative will put three aircraft out of service over the next three months at any one time. The reconfiguration will mean adding seats to the fleet, improving revenue production of each aircraft.

The reconfiguration is in line with the carrier's announcement in September that it will get out of the low-cost market within the next four months and focus on the premium market instead.

The company started out as a full-service operator offering premium and economy class options on international and domestic routes. However, for the last three years, it has also been operating ATR aircraft under the Kingfisher Red no-frills brand after buying low-cost carrier Deccan.

Kingfisher Red, however, has been unprofitable because of its high operating costs and low yields and the airline has been under pressure to revamp its operations to return to the black.