Kingfisher Airlines, struggling to stay afloat, may spin off its ATR fleet and loyalty programme (frequent flier programme) into separate units.

The fund-starved carrier has a fleet of 66 planes, including 27 ATR-72s which are primarily used to fly to tier-II cities.

According to the airline, ATRs form 15 per cent of its domestic capacity and the fleet's operating margins are 8 per cent higher than the airbus A320 planes. The airline said its frequent flier programme had 1.8 million members and was growing at 25 per cent each year.

"Kingfisher has monopoly on some of the routes it operates ATR planes. As a result, it's able to command higher fares than the other routes," said a source in the aviation sector.

"Till recently, it was the only airline flying on certain routes in south India and even now, it is the only airline connecting Hubli, Kullu and Shimla. The yields on ATRs are higher."

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Kingfisher has grounded few of its ATR planes because of maintenance problems and want of spares. ATR's media manager, David Vargas, said his company was trying to give Kingfisher the best customer support and declined to answer queries related to grounding of planes.

The airline did not respond to an email query on the issue. "The ATR planes got inducted into Kingfisher after it took over Deccan. It now appears the management is demerging the business. Salaries and facilities for the staff can be different. You can run two separate units with different cost structures and try to earn a profit," said Vishwas Udgirkar, Deloitte's senior director.

Other analysts are, however, skeptical about the airline's plans to hive off business segments into separate units.

"It will give Kingfisher a temporary reprieve and it will have more money to pay debt," said aviation expert Hormuz Mama.

The carrier may also hive off its engineering department into a separate unit. "The MRO (maintenance, repair, and operations) plans won't cut much ice with investors. Kingfisher has only one hangar in Chennai, which it got after taking over Air Deccan.

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Kingfisher engineers carry out routine maintenance jobs, but for regular and specialised checks, they send the planes abroad," another expert said.

New plans unveiled to stay afloat

Raghuvir Badrinath in Bengaluru

Kingfisher Airlines, which has been locked in for the past two weeks in intense protracted discussions with a battery of bankers, led by State Bank of India, has proposed an Rs 400-crore (Rs 4 billion) interest cost reduction per year through a series of structured steps.

This will be coupled with total operational improvements worth almost Rs 1,800 crore (Rs 18 billion) through reconfiguration of aircraft, striking discount pacts with a host of vendors and effecting a 10 per cent lease rental reduction.

A senior board level member of the UB Group told Business Standard the Kingfisher Airlines management had been able to come to some sort of agreement on most of the terms, except for the differences with oil marketing companies.

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"The banks are understanding. The aircraft lessors, too, are in the frame, as they have seen similar situations across the world with various airline companies. The oil marketing companies are the ones with whom we have not been able to come to agreement yet," the official said. Aviation turbine fuel accounts for 40 per cent of Kingfisher Airlines' expenditure.

To overcome this, it is attempting to directly import fuel and avoid paying sales tax levied by various states, which Kingfisher Airlines has been terming 'exorbitant'.

Kingfisher has been maintaining the steep depreciation of the rupee against the dollar and the spike in the cost of crude are among the key reasons which have taken the wind out of its sail.

"When we went into debt restructuring plan, the rupee was around Rs 40 to a dollar and now, it is Rs 50. The fuel was around $80-90 per barrel and it has sharply moved to $115. We are asking the banks to take this reality into perspective and extend another Rs 400-crore working capital to tide over the current crisis until equity infusion happens," the official added.

The airline, hit by these factors, ballooning debt and a high interest payout, which is wreaking havoc with cash flows, posted Rs 450 crore (Rs 4.50 billion) in losses during the second quarter.