KOCHI: Kannur International Airport Ltd (KIAL) continues to face serious financial stress, with the company reporting deep capital erosion and sustained cash losses in FY25, despite a notable reduction in its annual net loss.
At the end of FY25, KIAL’s (Kannur airport) net loss stood at Rs93.9 crore, an improvement from the Rs168.63 crore loss in FY24. However, the company’s accumulated losses since inception have reached Rs838.86 crore. As a result, KIAL has lost over 63 per cent of its paid-up capital, with total equity shrinking to Rs502.48 crore from the original Rs1,338.38 crore.
This sustained erosion of capital now places the airport’s long-term viability increasingly at the mercy of external financial support, primarily from the Kerala government.
Financial performance
Commercial operations at KIAL began in 2018. Although revenue nearly doubled in FY25 to Rs190.93 crore, primarily due to a surge in user development fees (UDF), this growth was not enough to offset high finance costs. Interest expenses remained steep at Rs125.42 crore, and the company continued to report a significant cash loss of Rs301.89 crore for the year—indicating ongoing negative operating cash flow.
User development fee (UDF) income more than doubled to Rs95.36 crore in FY25, accounting for nearly 60 per cent of KIAL’s total aeronautical revenue of Rs160.15 crore. Non-operating income rose modestly to Rs4.29 crore.
REC refinancing Rs1,103.13cr
In a bid to stabilise the situation, the Kerala government infused Rs113 crore as subordinate debt. This financial support was a precondition for refinancing KIAL’s existing debt through a new loan facility from REC Ltd.
The refinancing deal, totalling Rs1,103.13 crore, replaces earlier borrowings from a banking consortium that included Canara Bank, Federal Bank, and South Indian Bank.
As part of the refinancing arrangement, the state government pledged 51 per cent of its equity stake in KIAL and issued an unconditional and irrevocable letter of comfort to support debt servicing. While the Rs113 crore infusion is currently recorded as borrowing in the company’s books – pending final terms – it effectively functions as quasi-equity, helping KIAL meet revised debt covenants.
An interest of Rs8.3 crore has already accrued on this subordinate debt, at a rate of 8.03 per cent, which is marginally lower than REC’s lending rate as per sanction conditions.
Precarious debt-to-equity ratio
As of March 31, 2025, KIAL’s total borrowings stood at Rs1,215.70 crore, up from Rs1,125 crore the previous year. With only Rs503 crore of equity remaining, the debt-to-equity ratio has become significantly skewed, highlighting the urgency for either an operational turnaround or further capital infusion.
Lenders like REC now view promoter support as critical for continued funding, with subordinate debt acting as a buffer – bearing higher risk and subordinate to senior debt in repayment, similar to equity.
Ownership and governance issues
KIAL is primarily government-owned, with the Government of Kerala holding a 39.23 per cent stake. Other major shareholders include Bharat Petroleum Corporation Ltd (BPCL) with 16.20 per cent and the Airports Authority of India (AAI) with 7.47 per cent, bringing total government-linked ownership to 62.9 per cent. Prominent investor Yusuffali MA holds an 8.59 per cent stake.
Despite operational improvements, KIAL remains heavily reliant on state-backed support and continues to face financial instability.
Legal dispute with CAG
Adding to its challenges, KIAL is embroiled in a legal battle over its statutory audit process. The Comptroller and Auditor General of India (CAG) argues that KIAL qualifies as a “deemed government company” under the Companies Act and must be audited by the CAG. KIAL disputes this, asserting that it has not met the criteria since FY2018–19 and has been appointing its own auditors.
The issue is currently pending before the Kerala High Court, which has issued a stay on the CAG’s directive. While the Kerala government’s recent financial intervention has helped temporarily stabilise KIAL’s financial situation, the company’s continued reliance on state guarantees, its unresolved regulatory disputes, and the lack of sustainable profitability raise serious concerns.
These issues call into question the long-term viability, governance standards, and public accountability of infrastructure projects operating with high government exposure.
