African premium traffic falling and why did IGCF throw money into Kingfisher?

Victoria
By Victoria August 16, 2012 17:03

African premium traffic falling and why did IGCF throw money into Kingfisher?

An IATA report reveals that African premium traffic has shrunk by 4.2% year on year (June 2012 vs June 2011) and by 5.6% for the 1st calendar half of 2012 (Jan-June 2012 vs Jan-June 2011). IATA’s latest assessment of premium (First & Business Class) and Economy airline travel based on data gathered from its members during June 2012 shows a general picture of contraction. Economy class traffic on Africa-Far East routes was down 2.3% from June 2011 figures and by 2.7% from H1 2011

However, there is great cheer to be had; even as the global economy falters intra-Africa premium traffic grew by 7.1% (June 2012 vs June 2011) and by 11.9% H1 2012 Vs H1 2011. Intra-Africa economy traffic grew by 8.3% for the month of June on the same period last year and by 13.2% for H1 against H1 2011.

The wonderful effect on African aviation of Emirates/Qatar/Etihad is clearly shown in the report with economy traffic from Africa via the Middle East shooting up 20.6% in June against June 2011 and by 23.2% for H1 against H1 2011. Premium traffic from Africa routing via the Middle East to onward destinations, increased by 17.5% for June against June 2011 and by 20.8% for the first half.

Even in these difficult economic times African aviation is growing: Make sure you see most of African aviation finance and leasing professionals at Airline Economics Dublin 2013, the global outlook conference that gives you far more for less and does not overlook all the frontiers of growth, no matter where they are. Visit www.aedublin.com today to find out more or to book.

Also to be found at Airline Economics Dublin are the guys from Kingfisher Airlines, some might think this to be of no consequence or indeed might think that Kingfisher should not be there at all so as not to cause offence. To that I say hold fire, as you may recall we called the situation at Kingfisher long ago when most of you guys were thinking everything was great with them. As mad as it may seem Vijay, if he sticks to this current plan, could well buy himself enough time to get Kingfisher Airlines out of problems. In fact what he is doing is little different by way of tactic than those used by the ECB. We all know it is failing and nothing ever gets agreed, but it is still rolling with good and bad press/share price days.

Indeed Vijay bought time for himself a few weeks ago through the Kanorias family-owned Srei Infrastructure Finance a debt fund managed by Srei Venture Capital, a 100% subsidiary of Srei Infrastructure Finance, they moved for up to Rs430 crore worth of debt in Kingfisher Airlines through their India Global Competitive Fund (GCF). But why?

Well, first off we should note that Rs430 crore is not going to make a dent in the huge Rs7,000 crore of Kingfisher Airlines debt. What it has done though is buy time. The investment was routed through India Global Competitive Fund (IGCF) and was bought at a zero discount. The question was at the time, and still is for most, why get in as the banks are trying to get out after declaring the airline a non performing asset?

The collateral behind the debt is extensive and impressive. Even if the Kingfisher investment turns out to be a bad one, the fund would be in control of the shares of the UB group and the properties owned by Vijay Mallya. However Srei Infrastructure has not been convinced to take a risk on Kingfisher, far from it, in fact Srei Infrastructure’s own investment in the fund is minimal. Of the Rs 430 crore, Srei’s direct investment in the fund was around Rs100 crore. The rest of the money was from third- parties, a combination of HNIs and corporates.

Even if the entire Rs 100 crore is written off from Srei’s books, the losses would not have much impact on the company’s balance sheet. Much of it will be recovered by the collateral. Of course if Kingfisher Airlines were to move into the black, or anywhere near it or if the Indian government were to agree to FDI, then Seri would have a substantial gain.

Some may remember Srei as in March this year it became the first company to obtain a high-court order to block rating agency Fitch from issuing an updated rating after it had revised Srei’s outlook from stable to negative, with a rating of AA-. Best of luck to them.

Victoria
By Victoria August 16, 2012 17:03
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