It’s the age of mega carriers: Will Air France-KLM raise its stake in ailing Alitalia?

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons


Alitalia is fighting bankruptcy as its shareholders initiate efforts to raise funds in light of its main fuel supplier threatening to cut off supply. The Italian postal service will contribute 75m euros (US$101.6m) to the rescue package of 500m euros.

Meantime, Air France-KLM – already the biggest shareholder of the beleaguered airline – waits to see if it should increase, possibly double, its stake of 25 per cent. Air France-KLM chief executive Alexandre de Juniac is in favour of the takeover to gain greater access to the Italian market, but the Franco-Dutch board is cautious about the debt incurred by Alitalia. The Italian flag carrier last made a profit in 2002 and has so far lost 294m euros in the first half of this year. Air France once made a bid in 2008 to take over the airline but was thwarted by a consortium led by then Prime Minister Silvio Berlusconi. The timing today may not be right as the new Air France-KLM is itself struggling with restructuring and cost issues.

The age of the mega carriers has long arrived and it appears the trend, predicted in as early as the ‘80s, looks set to continue. In Europe, besides the Air France-KLM merger, there is the International Airline Group comprising British Airways and Iberia. Lufthansa wholly owns Austrian Airlines and Swiss, and owns 45 per cent of Brussels Airlines, 14.44 per cent of Luxair, and varying interests in a string of other airlines. The competitive field – not only in Europe but also in the United States and to a lesser extent elsewhere – has narrowed to a few mega groups of airlines with fiscal partner interests beyond mere marketing alliances.

In the United States, United Airlines is merged with Continental Airlines under United Continental Holdings; Northwest Airlines is merged with Delta Air Lines; and American Airlines is merged with US Airways. Delta made news when it acquired a 49-per-cent stake in Virgin Atlantic, the stake bought from Singapore Airlines (SIA) which until then had maintained a passive interest in its holding. For Delta, more than for SIA, it would materially increase its presence across the Atlantic.

In South America, LAN Airlines of Chile absorbed TAM Airlines of Brazil to form LATAM.

Somehow the trend is less prominent in Asia and the extended region where flag competing flag carriers generally prefer marketing alliances such as the partnership between Qantas and Emirates, and that between Singapore Airlines (SIA) and Virgin Australia. But it is changing as the competition intensifies in a tight market and as blocs begin to form to make bigger bites, and as countries relax their rules on foreign ownership. SIA now owns 19.9 per cent of Virgin, which is also 19.9 per cent owned by Etihad Airways and 23 per cent owned by Air New Zealand (ANZ). ANZ has announced it will increase its stake to 25.9 per cent, and thus continues to be Virgin’s largest shareholder outside the Virgin Group.

Cash-rich Middle-East carrier Etihad seems to be particularly active on this front, picking up stakes in Air Berlin, Air Seychelles and Aer Lingus, and targeting to complete a 49-per-cent acquisition of Air Serbia in January next year.

Yet the interest seems more as a matter of pure investment or hedging against a shifting competitive landscape. There is no white knight appearing in the horizon to rescue ailing Kingfisher Airlines while many foreign carriers have expressed interest to enter the large and growing Indian market now that India has relaxed its policy on foreign ownership. Etihad is more interested in the less vulnerable Jet Airways. Malaysian budget operator AirAsia and SIA have initiated separate deals with local investors to start new airlines. There is really no valid reason to buy into debts unless the potential for recoup plus growth is visible, almost tangible. But the Indian market has been somewhat of a come-and-go melee, susceptible to changing regulations.

Yet what should make the Alitalia case different for Air France-KLM? It is probably one of market proximity, where the impact may be more immediately felt by the suitors. It goes beyond passive investment – a case in point as mentioned earlier is the SIA/Virgin deal compared with Delta/Virgin deal – to more strategic considerations of how the acquisition would advance the Air France-KLM cause vis-à-vis its competitors within the same region. It becomes an issue of survival in itself.

Interestingly, Etihad was asked if it would be interested to buy into Alitalia, and chief executive James Hogan sidestepped the issue, telling AFP: “At the moment I’m focussed on India, transactions in India. We look at many businesses but we are primarily focused on Jet Airways.” Yet it is rumoured that Hogan has been meeting up with Air France-KLM to discuss the matter, purportedly to persuade Air France-KLM to raise its stake or let someone take its place. Does it appear obvious enough who that “someone” may be? You make a guess.

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Curtains for Kingfisher Airlines

Courtesy AFP

Courtesy AFP

IT  looks like the fat lady has sung for Kingfisher Airlines. Or has she really?

India’s Ministry of Civil Aviation has withdrawn international flying rights and domestic slots from the debt-ridden airline whose licence expired at the end of 2012 and which has been grounded since October last year. The company has up to two years to apply for a reinstatement.

The reason cited by the authorities was one of non-operations, and a long awaited decision since so many other airlines are said to be waiting to take up Kingfisher’s slots. One senior official reportedly said the wait for Kingfisher to restart operations “cannot be an endless one.” The airline’s international operations cover Bangladesh, Hong Kong, Nepal, Singapore, Sri Lanka, Thailand and the UK.

But a statement issued by Kingfisher said it is still “confident of securing approval” from the authorities for a plan that it submitted, even as hope of rescue from foreign interests has all but waned. AirAsia has snubbed that possibility when it announced recently it would set up a joint venture with non-aviation partners Tata and Bhatia. (see AirAsia boosts Indian confidence in new joint venture, Feb 21, 2013). And Etihad Airways in evaluating Kingfisher against Jet Airways seems to favour the latter.

If the fat lady is still singing, its voice may peter out quietly. Broken and unwanted, Kingfisher, which has not made a profit since inception in May 2005 with accumulated losses of US$1.9 billion, has waited too long.

AirAsia boosts Indian confidence in new joint venture

NO, budget carrier AirAsia is not taking the route of Etihad Airways which is still mulling over a possible buy-in of Jet Airways. It will not be laden with the debt of airlines such as Kingfisher Airlines, a possible candidate for takeover. Instead, Asia’s largest discount carrier is partnering with non-aviation Indian investors to set up a new budget carrier to be based in Chennai, taking advantage of India’s relaxed ruling to allow foreign owner4ship up to 49 per cent. AirAsia will own 49 per cent of the new venture, with Tata taking 30 per cent and Bhatia 21 per cent.

GETTY IMAGES

GETTY IMAGES

AirAsia’s foray may be seen as a move to restore confidence in the somewhat messy and debt-ridden Indian airline business. Only one of India’s six main scheduled carriers- IndiGo – made a profit last year.  AirAsia chief Tony Fernandes is beaming with confidence, having reportedly said: “First, there are a billion people in India; second, millions of people travel in trains; and third, there is a big potential in under-developed routes. We have been studying the Indian market for the past three years and we feel now is the right time.”

Few analysts would refute the potential of the Indian market, which explains the continual sprouting of upstarts, yet not few have come and gone. AirAsia, which planned to kick off operations of the yet-to-named airline in the third quarter of the year, said it would introduce new low fares – very much its trademark selling pitch across its network – and this comes at a time when airfares in India are rising. How will this play out in the competition?

It may be a test of staying power. AirAsia is backed by strong partners without the mess of a debt hangover. Besides, AirAsia is not an unknown brand in the Indian market, as the carrier already operates to five Indian cities. AirAsia’s long haul arm – AirAsia X – pulled out of India last year because of poor demand. If the new domestic carrier succeeds, AirAsia will stand to gain even more in attracting customers beyond India.

But the competition may become more challenging for the smaller carriers such as SpiceJet and IndiGo, especially when AirAsia is targeting the same market. But that’s India. Despite the turbulent skies, there are opportunities. And in spite of the opportunities, some carriers will make an exit sooner than expected.

Kingfisher unruffled

Courtesy AFP/Getty Images

Courtesy AFP/Getty Images

Kingfisher Airlines rings in an early dismal note for 2013. It has lost its flying permit for failing to meet the deadline for renewal of its suspended licence. India’s civil aviation chief Arun Mishra said: “Kingfisher’s flying permit has lapsed. They failed to provide additional details on the finding of operations.”

Kingfisher’s operations have been suspended since October last year, following five years of losses since it started. Service providers such as Airports Authority of India to whom money is owed are petitioning for suspension of the airline until it has cleared all dues to them.

But the airline has reacted with no “cause for concern”. Apparently, Indian aviation rules allow a grace of two years following expiry for renewal. Kingfisher spokesman Prakash Mirpuri said: “Kingfisher is confident of securing approval from the regulator on the restart plan, licence approval and reinstatement of its operating permit.”

Yet again the beleaguered airline is not admitting defeat and continues to relish hope that its talks with potential foreign investors including Middle East airline Etihad Airways may help lift it off the ground. But industry analysts are beginning to doubt if Etihad would be interested to “buy” a debt load that could be as much US$2.5 billion. (White knight Etihad Airways to Kingfisher Airlines’ rescue, Dec 13, 2013).

Confidence or chutzpah, call it what you will; Kingfisher is not finished with its story yet. (Kingfisher Airlines’ Bollywood drama, Oct 19, 2012)

White knight Etihad Airways to Kingfisher Airlines’ rescue

kingisherKingfisher Airlines is not ready to submit to the proverbial straw that breaks the camel’s back. Not yet. It may have found its white knight in Middle-East carrier Etihad Airways, which is said to be interested in acquiring a 48-per0cent stake in the debt-ridden Indian carrier.

The airline is saddled with problems to the brim: it runs a debt of US$2.5bn, staff are on strike for not being paid their wages, the authorities have grounded the airline, and banks have refused to provide any more loans. Launched in 2005, Kingfisher has never made a profit.

Here comes Etihad Airways with the deep pocket, keen to expand into the Indian market (as it is elsewhere). Kingfisher provides the opportunity although it was said that Etihad was originally interested in Jet Airways, India’s largest airline by total passengers carried.etihad

Kingfisher issued a statement to confirm Etihad’s interest: “We would like to clarify that the company is in discussion with various investors, including Etihad Airways, for equity investments in the company.” According to the Mumbai Mirror, the deal would cost just over 30bn rupees (US$552m). It would be in two phases: an initial 30-per-cent in December and a further 18-per-cent by August next year. A formal announcement is expected within days.

This news comes on the heel of reports that AirAsia chief Tony Fernandes was in India looking for opportunities to take advantage of India’s relaxation on foreign ownership. But Mr Fernandes denied any interest in embattled Kingfisher. Interestingly, Mr Fernandes was largely reputed for turning a debt-ridden airline which he bought from the Malaysian government for one ringgit (US$0.26) along with debts amounting to US$11m into Asia’s largest budget carrier.

AirAsia eyes Indian joint-ventures

Courtesy telegraph.co.uk

Courtesy telegraph.co.uk

AirAsia chief Tony Fernandes is eyeing possible Indian joint ventures now that India has relaxed the rule on foreign ownership, allowing foreign airlines to buy up to 49 per cent equity in a local carrier.

Mr Fernandes said on Twitter: “AirAsia will focus on larger joint ventures. Think we are done in Asean.”

AirAsia has been expanding its presence in Asean (Association of Southeast Asian Nations), having set up bases in four member countries – home base Malaysia, Indonesia (Indonesia AirAsia), the Philippines (AirAsia Philippines) and Thailand (Thai AirAsia) – and operating to eight of the countries including Singapore, Cambodia, Laos and Myanmar. Mr Fernandes also made a bid to acquire a stake in Indonesian carrier Batavia Air but the deal fell through. Outside Asean, AirAsia has partnered with All Nippon Airways to set up AirAsia Japan.

Mr Fernandes’ renewed interest in India is interesting since it was only early this year that its long-haul budget arm AirAsia X announced suspension of flights between Kuala Lumpur and the Indian ports of Mumbai and New Delhi early this year. Thai AirAsia also reduced frequencies between Bangkok and New Delhi. (See AirAsia branding losing ground, Feb 1, 2012)

India is a huge market and AirAsia’s presence is thin compared to its coverage of Asean, but the competition is intense, in light of India’s many budget carriers, a number of which have come and gone. Would AirAsia be interested in rescuing Kingfisher Airlines which is teetering on the edge of extinction? Rumour had it that AirAsia might be interested in acquiring a stake in SpiceJet instead, but this was denied by Mr Fernandes.

Whichever airline he picks, will AirAsia – hyped as Asia’s largest budget carrier – be able to replicate its success elsewhere in India?

The end of the Kingfisher Airlines saga?

Courtesy flightglobal.com

IF you were an employee of bankrupt Kingfisher Airlines and who has not been paid for seven months, would you accept an offer from the airline to be paid three months on condition that you return to work? That’s the deal that Kingfisher is dangling before the striking staff.

However, that outcome withstanding, the Indian authorities have suspended Kingfisher’s licence until it could outline a plan to the satisfaction of the authorities of a financially sound and operationally safe future. Kingfisher, deeply indebted to airports, tax agencies and creditors, has never posted a profit since its launch in 2005. Is this the end of its saga?

But Kingfisher chief executive Sanjay Aggarwal continued to hold out hope of resuscitation. He reportedly informed Reuter news agency: “We are continuing discussions on recapitalisation. Those discussions slowed down but they are not stalled.” And he believed Kingfisher staff would be back at work within a couple of days – ahead of the government’s review of its suspension, which should nonetheless view this as a positive development albeit an inadequate one.

Kingfisher’s last straw of hope lies in the Indian government’s relaxation of the restrictions on foreign ownership of domestic airlines, allowing a stake of up to 49 per cent. There had been rumours about Kingfisher engaging in talks with interested foreign investors, but a white knight has yet to appear on the horizon.

Any potential investor is likely to take a closer look at the Indian aviation landscape where cut-throat competition has led to the downfall of numerous carriers, amongst them Air Deccan which was acquired by Kingfisher after three years of operations. Is there something anemic about the Indian aviation industry, though one would expect a growing demand for air travel in a country as populous as India that is at the same poised as an emerging Asian economic power? Or is it just the way things come and go in the world’s largest democracy? C’est la vie.