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Banks continue to extend loans to airlines

December 24, 2008 10:00 IST

Despite sharp erosion in the net worth of airline companies due to losses in the recent past, banks and financial institutions have decided to sanction loans to some of them including Jet Airways and Kingfisher Airlines, while some of the companies in this sector are still waiting.

According to senior officials of a public sector bank, full service carrier Jet Airways has been sanctioned a loan worth Rs 700-800 crore (Rs 7-8 billion) from a consortium of public sector banks that includes Punjab National Bank and State Bank of India.

Kingfisher Airlines, which merged with low-cost carrier Air Deccan last year, is learnt to be in the final round of discussion with another group of banks, which includes Bank of Baroda and Indian Overseas Bank, for loans worth Rs 600-800 crore (Rs 6-8 billion).

"Jet has been looking for a loan of around $300 million (Rs 1,500 crore). It has already been given $100 million and will get a part of the other chunk before the end of this financial year," said a market analyst on condition of anonymity.

Jet executives refused to comment on the issue. Responding to an email, however, Kingfisher Chairman Vijay Mallya denied having any talks with Bank of Baroda or a consortium of banks, but said that they are getting credit from several banks.

"We have no discussion with Bank of Baroda. KFA does not have a bankers' consortium. All I can confirm is that multiple banks have provided sufficient lines of credit to KFA, which is meeting all its obligations including payments of overdues to oil marketing companies (two instalments paid on time already) and to Airports Authority of India (three instalments paid on time already)."

According to a senior banker, the problem in taking fresh exposures with aviation companies is erosion of networth. "They were already leveraged. After the losses they need to fund through equity route to bolster the networth. Otherwise the debt-equity ratio of these companies changes disproportionately," he added.

Citing the case of Jet, the banker said that its net worth which stood at around Rs 2,237 crore (Rs 22.37 billion) by the end of financial year 2007-08, has faced losses of Rs 777 crore (Rs 7.77 billion) for the first quarter of 2008 and Rs 385 crore (Rs 3.85 billion) for the second quarter. Jet Airways changed its depreciation accounting principles and reported a profit of Rs 144 crore (Rs 1.44 billion) for the first quarter.

According to market sources and recent reports, Jet has been in talks with various banks for a loan of Rs 1,500 crore. The airline is recently believed to have secured loans worth Rs 1,000 crore (Rs 10 billion) from Abu Dhabi-based investment firm Mubadala Development Company.

Kingfisher increased its borrowing limit recently to Rs 7,500 crore (Rs 75 billion), following a resolution through postal ballot has secured loans worth Rs 1,000 crore (Rs 10 billion) from ICICI Bank.

Arun Kumar & Anirban Chowdhury in New Delhi
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