Sunday, November 23, 2008

Indian airlines are facing serious crisis amidst global credit crunch

India’s aviation industry is now facing tough times. Global credit crunch, fuel price rise and decrease in number of travelers lead to job cuts, reshaping the routes, decreasing number of flights, and increasing air-fares. Finding no other options, the domestic and national airlines are now looking forward to raise money from banks and investment companies for their survival. Jet Airways (India) Limited (BOM:532617), India’s second largest international airlines and largest domestic airlines, is now in talks with State Bank of India (BOM:500112) and Punjab National Bank (BOM:532461). The company is asking for Rs. 15 billion for working capital and expansion plan funding. Jet Airways is also asking Abu-Dhabi based investment company, Mubadala Development Co. to lend Rs. 10 billion.

Jet Airways’ major rival, Kingfisher Airlines Ltd. (BOM:532747) is also looking for potential investors in Singapore and Hong Kong but company officials did not reveal any information on the issue. An inside person, who wanted to remain anonymous, said that recently, the airlines took a loan of Rs. 10 billion from ICICI Bank Limited (BOM:532174) and asking for a second loan. It is also talking with investors to raise Rs. 20.48 billion through equity sales.

India’s national airlines, Air India Limited, which is owned by the National Aviation Company of India Limited (NACIL) is also looking forward to raise $2.5 billion from banks to fund its acquisition of 23 Boeing planes. NACIL is asking for a soft loan of Rs. 40 billion. Government is now evaluating the proposal.

Indian airlines are about to incur a loss of about Rs. 100billion. To continue their operations, they need to raise Rs. 40 billion working capital but the banks are finding it difficult to provide such a large amount of money.

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