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Huge sales tax on ATF hurting airlines: Vijay Mallya
June, 07th 2011

In an interview with ET Now, Vijay Mallya , Chairman, Kingfisher Airlines, shares his outlook for the aviation industry and talks about his expansion plans, among others. Excerpts:

What is the maximum level of prices that the aviation sector can sustain if indeed crude prices continue to do what they are doing?

$90 a barrel of crude or less is what our business plan is based on. We can afford that, but it is not just a question of the prices of crude and consequently the price of aviation turbine and fuel in India. It is the huge sales tax on top on ad valorem basis that really hurts us because as the fuel prices keep going up, the state governments may make windfall profits that affects the cost of airlines.

Look at the quantum and demand seems to be coming back, what are your expansion plans if any? How many new aircrafts would you be adding to your fleet this year and more importantly how do you plan to fund these aircraft expansion plans?

Demand has come back strong, but since civil aviation growth is part and parcel of GDP growth and I have the confidence that the Indian economy will continue to grow in excess of 8% per annum. I think civil aviation growth will go hand in hand, but back in 2008-2009 I deferred many deliveries of Airbus aircraft to 2012 and 2013 for good reason at that time.

The economy came back stronger and quicker than I thought and we are experiencing strong growth. So yes, we are short on capacity as I speak. We are looking to bridge the gap through leased aircraft for the next 18 months after which our own deliveries will start to come. As far as financing these new aircraft are concerned, it is simple you make your
pre-delivery payments and then take the aircraft on operating lease.

What is your outlook as far as airfares are concerned? Do you see them going up and if so what is the kind of upside that we can expect from these levels?

Airfares should go higher in India reflecting the increased cost of operation. I think too many people out there in India, media included, slam the airlines for increasing fairs. Nobody looks around them enough to look at inflation. In many other aspects of daily life and I do not see why airlines and airfares should be singled out. We are in business to make money and we should be able to charge what it takes to keep us profitable.

You were also looking at raising about $300 million via ADR. What is the plan on that front? If the ADR issue is not happening, then are you looking at some other mode or instrument to raise funds?

We had an excellent road show for our GDR in January and early February this year and we presented a compelling business plan. Of course assuming a crude oil at $90 a barrel, the minute the crude oil prices started going up to $120 plus/barrel, prospective investors ask us to rework our business plans which we did. But having said all that, the current policy of the government of India where foreign airlines are not allowed to invest directly, it is something that I keep on appealing to the government to review aviation as a capital-intensive business.

Air connectivity is vital to our country and we should be allowed to raise capital through foreign airlines because they are better placed, they understand the industry better and unlike general investor who can invest in multiple sectors, I think airlines deserves airlines as shareholders.

How much of debt are you looking to retire this year?

We are not obliged to retire any debt this year at all. We have a moratorium period and a total nine year door-to-door for our total debt.

What are the new routes that Kingfisher Airlines on an international place is looking to start flying, domestic as well as international? Is there expansion in sectors that you are planning?

There is a lot of wealth in tier 2 and tier 3 cities in India. We have a large fleet of ATR aircraft and we are in the best position to take advantages of these emerging opportunities as new airports continue to open in our country. As far as international expansion is concerned, of course we are happy that we are a member of Oneworld. We will be fully operational member hopefully by 2012 February and our international expansion will go hand in hand to leverage our Oneworld relationships.

Kingfisher Airlines has been in trouble as it has been defaulting on airport oil dues. Has Kingfisher been able to sort out these issues?

The media knows better. You should ask your fellow journalists for the accurate answer because I think they know better.

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