Cash-starved Deccan gets breathing space
The United Breweries group’s decision to acquire a 26% stake in Deccan Aviation will give the low-cost carrier a much-needed respite from severe financial woes.
By TNN |
MUMBAI: The United Breweries group’s decision to acquire a 26% stake in Deccan Aviation will give the low-cost carrier a much-needed respite from severe financial woes.
A study of Deccan Aviation’s financials indicates that the company is in need of cash. Deccan Aviation is the holding company for Air Deccan. The airline’s operating losses over the past four quarters mean that it will need more cash to continue flying its planes.
Its need for cash for daily operations has affected its fleet addition plans, as it seems to be going slow on capacity addition for the time being. A cash infusion will help the airline continue, but that will not provide a solution for the overcapacity problem the aviation industry faces.
Losses for domestic airlines have mounted in recent quarters as large capacity additions have led to heavy discounting — and consequently lower margins. Even Jet Airways, a full-service carrier, is selling 70% of its tickets on discounts, almost a reversal of the situation at the beginning of FY06.
While Jet Airways has seen an erosion of profitability, the lower yields have translated into bigger losses for other airlines. This means that airlines need to go for fund-raising every few quarters. Air Deccan has been through two rounds of fund-raising during the past year.
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In May 2006, Deccan Aviation raised Rs 363 crore through its IPO. Later on, in September 2006, the company raised Rs 440 crore from advance sale and lease back of aircraft, of which it has already recorded Rs 271 crore as income. The total cash available works out to Rs 634 crore.
However, Deccan Aviation has recorded an operational loss of Rs 657 crore over the past four quarters. Counting the interest outgo, cash loss is Rs 700 crore. The company has spent Rs 193 crore off the IPO proceeds as well. This should mean that the company will need additional cash in the near future to continue its operations.
Deccan, which follows a July-June financial year, has recorded a net loss of Rs 247 crore in the past three quarters of the fiscal. The net loss is lower than the operational loss due to other income of Rs 357 crore, of which Rs 271 crore was from the advance sale and lease back transaction.
The cash crunch Deccan is facing seems to have affected its fleet expansion plans. During FY07, the company saw its fleet increase from 30 to 43. However, the fleet size has continued at the same level since.
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Given that the airline is losing money on every passenger flown, this is a positive for the company. Deccan had a market share of 18.3% during 2006, making it the second-largest carrier. The company has since lost the spot to state-owned Indian.
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