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Kingfisher loses operating licence

Publication Date : 21-10-2012

 

Two months ago, the Centre for Asia Pacific Aviation (Capa) had predicted the grounding of India's Kingfisher Airlines. Yesterday the Directorate-General of Civil Aviation (DGCA) suspended the airline's licence, putting its survival under a cloud.

The move came three weeks after Kingfisher declared a lockout in the wake of some of its employees going on strike seeking the payment of long-due salaries.

The DGCA has said the licence will be suspended until the airline is able to put together a credible revival plan. On October 5, the DGCA had issued a show-cause notice to the airline asking why its licence should not be cancelled.

The airline had been given 15 days to respond, and this period ended today.  In reply to the notice, KFA had said the employee unrest is not within their control, which the regulator found unsatisfactory.

The Scheduled Operator Permit of the airline has been suspended until further orders, officials of the civil aviation ministry confirmed. This means an immediate stop to all bookings on the airline's network and through travel agents.

Civil aviation minister Ajit Singh said Kingfisher will have to satisfy the DGCA about safe flight operations and also make sure that its employees are not disgruntled before it resumes its services.

He said the planes of the airlines were not being maintained and serviced by their engineers who were on strike. “Safety can’t be compromised,” he added. Asked about allotment of Kingfisher’s slot to other airlines, Singh said, “I presume the slots would be allotted to other carriers.” 

Capa, which regularly monitors developments in the region's aviation sector, had described KFA’s financial situation since December 2011 as "quite alarming". A report by Capa experts had questioned how long KFA can continue to survive on the unusual compassion shown by a host of benign lenders - a consortium of 17 banks and institutions led by State Bank of India.

In Capa's estimate, the near-bankrupt airline's debts at 13,460 crore rupees have been mounting at an alarming rate for the past 18 months. It will need nearly 5,380 crore rupees to fund its turnaround in the near future. (One crore is equivalent to 10 million.)

The airline has been insisting that a possible turaround is in sight. The basis for the claim is ongoing talks with foreign airlines who, it claims, have displayed interest in Kingfisher following the government's policy decision to permit 49 per cent FDI in the domestic aviation sector.

However, the KFA management has never disclosed even to its lenders who the probable off-shore investors are. 

After  KFA was forced to cut its daily schedule of flights drastically, its daily operational losses varied between 6 crore and 8 crore rupees. 

The airline was floated in 2005 but not once has the high-profile carrier showed a profit. The crisis snow-balled once lenders' confidence took a knock.

A few days ago, as Kingfisher extended the lock-out in the company up to October 23, the regulator rejected its winter schedule that was expected to take effect from November 5.

Capa had predicted "only an outside chance of recovery given its massive debts, crippled fleet and poor employment morale." The monthly wage bill of nearly 4,000 employees, according to the agency, is 30 crore rupees.

Only 50 per cent of employees were paid salaries up to March 2012. The recent offer by the 17-member lenders' consortium to release 60 crore rupees from escrow account to pay striking engineers, pilots and ground staff would help settle barely two months' dues, said CAPA.

The SBI-led lenders now face the possibility of a big write-off because under the debt restructuring plan they had agreed to in November-December 2010, banks and financial institutions recast about 6,500-crore rupee debt into a 23 per cent equity stake which they now collectively hold.

SBI, the biggest lender at 1,500 crore rupees, had already put Kingfisher under the Non-Performing Assets head in its books of account. Three months ago, a consortium member, ICICI Bank, sold its liabilities for about 500 crore rupees and walked away as it saw signs of Kingfisher being grounded for good.

 

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