The Kingfisher counter witnessed renewed investor interest on Thursday after the company announced that it has paid off its dues to oil companies that provide aviation fuel. Kingfisher’s stock rose by 7% to Rs 67.7 on Thursday from the previous day’s close. The news has come at a time when Kingfisher Airlines is struggling to maintain its bottomline growth.

Its performance in the past two quarters has been hardly encouraging. In contrast, its domestic peers have shown significant improvement in their net profits. In this backdrop, the news that it has paid off its creditors may offer some breather to investors.

In the past two quarters, the fortunes of airline companies have changed dramatically. A growth of 22% in passenger movement and benign crude oil price propelled net profits of both SpiceJet and Jet Airways during the June 2010 quarter. SpiceJet, for instance, reported two-fold jump in its topline. And Jet Airways, the country’s largest carrier, turned profitable during the quarter. In contrast, Kingfisher is yet to reflect any positive impact of higher passengers traffic. It reported losses for the quarter ended June 2010.

An important reason for Kingfisher’s dismal performance is the sluggish demand in its international operations. These are yet to generate revenue proportionate to the investment made in the past two years. The expenditure on international operations has stretched Kingfisher’s financials.

The debt on its balance sheet has shot up from Rs 914 crore in FY07 to Rs 5,665 crore in FY09. In FY09, the company’s revenue in foreign exchange was just 4% of the total revenue.

The company had recenlty announced plans to raise around Rs 5,000 crore through rights, GDR and preferential issues. It remains to be seen how successfully it can complete the fund raising exercise. It has already taken a step in this direction by increasing its authorised capital from Rs 1,000 crore to Rs 4,250 crore.

But even if it succesfully raises necessary funds, the company may face the dilemma of either reducing its humongous debt or pumping the money to strengthen its domestic and international operations.