Kingfisher Loses Permit as Airports Threaten To Seize Assets

AIN AIR TRANSPORT PERSPECTIVE » JANUARY 7, 2013

by  NEELAM MATHEWS

Fortunes have reversed for Kingfisher Airlines since 2007, when the carrier’s CEO, Vijay Mallya (seated center), hosted Airbus COO for customers John Leahy (left) and Airbus executive v-p Kiran Rao during a New Delhi press conference promoting Kingfisher’s since dashed plans to fly the A380. (Photo: Airbus)

January 7, 2013, 11:55 AM

Facing a high debt burden, unpaid bills, a depreciating rupee in its home country of India and rising fuel costs, Kingfisher Airlines saw its Air Operator Permit (AOP) expire on December 31 after the Director General of Civil Aviation (DGCA) found the carrier had failed to furnish no-objection certificates from service providers–including airports–in its restructuring plan. Now, the Airports Authority of India (AAI) has threatened to “evacuate” the assets of the airline from airports across the country. “We also have plans to expedite a check bouncing case against Kingfisher Airlines,” said AAI chairman V.P. Agarwal in a statement.

The carrier, flying around seven of its former complement of 66 aircraft–a mix of ATR turboprops and Airbus A320s only on domestic sectors–before it closed operations on October 1 last year, reacted to the DGCA’s action with a statement declaring “no cause for concern as the regulations permit license renewal within two years of expiry” and “[confidence] of securing approval from the DGCA on the restart plan, license approval and reinstatement of its AOP.” The carrier has also assured that parent company United Breweries Group will furnish the $120 million of funding needed to restart operations. The plan includes starting operations with seven aircraft and increasing the size of its fleet to 20 airplanes within a year. Kingfisher’s aircraft inventory now officially numbers 39.

Indian civil aviation minister Ajit Singh recently said no bank would lend funds to the airline, which carries a debt of about $1.5 billion. A staff of 4,000, whose salaries now stand eight months in arrears after they just received paychecks for May 2012, might shrink to 2,500 should authorities approve Kingfisher’s restructuring plan, the Center for Asia Pacific Aviation’s CEO for South Asia, Kapil Kaul, told AIN.

“Keeping losses to a bare minimum in the first year will be crucial as the airline will also have to deal with legacy issues like litigations,” said Kaul. “Getting fresh management and new board members will be critical to its success.”

Despite seeing its airplanes deregistered, staff walkouts, cancelled flights and its license suspended, pronouncements from the airline itself suggest it retains some fighting spirit, said Suzanne Rab, a partner at London-based law firm King & Spalding. “Grappling with longer-term investment horizons to create a sustainable future rather than short-term solutions to avert a financier calling in their finance will be key,”she concluded.