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Kingfisher airlines risks losing licence as regulator acts on lockout

Cash-strapped carrier may be penalised for extending a shutdown following a strike

Image Credit: AFP
Striking employees of India's private Kingfisher Airlines hold during a protest march from the domestic airport to the company's office in Mumbai on October 5, 2012.
Gulf News

New Delhi: India’s aviation regulator asked Kingfisher Airlines Ltd why its licence shouldn’t be cancelled or suspended after the cash-strapped carrier extended a shutdown following a strike.

Kingfisher hasn’t come up with an operational plan, the Directorate General of Civil Aviation said yesterday in a statement. The carrier had assured the regulator that flights would be resumed by last Friday and now says it will take another week.

The airline will send a response to the regulator “well in time” to meet a 15-day deadline, Prakash Mirpuri, spokesman for Kingfisher, said in an email. “We will also submit a comprehensive plan for restoration of services after negotiations with our employees.”

The latest move by authorities adds pressure on Chairman Vijay Mallya as he seeks investments to avert the collapse of an airline struggling with Rs86 billion (Dh6.09 billion or $1.6 billion) of debt and years of losses. The Bengaluru-based carrier on Thursday extended the suspension of flights through October 12 after locking out employees who were protesting about not being paid.

Kingfisher said October 1 that it would stop flights through October 4 after some employees failed to come to work. A group of pilots and engineers said in Mumbai on October 3 after a meeting with managers that they would resume service only after seven months of salary is paid.

Kingfisher Chief Executive Officer Sanjay Aggarwal asked for 10 days to pay March salaries and didn’t give a timeframe for settling subsequent months, according to Vikrant Patkar, a Kingfisher captain who said he represents 250 pilots and 270 engineers.

Safety standards

The regulator isn’t satisfied with the carrier’s safety standards following the delayed salaries and strike, Aviation Minister Ajit Singh said in an interview on Friday. The directorate can cancel or suspend the permit of an airline if it isn’t convinced of the carrier’s ability to ensure safety, according to the statement.

Kingfisher defaulted on loan and interest payments on several occasions in the year ended March 31, the company’s auditor said in the annual report. The carrier had also delayed payments to banks, airports, tax authorities and fuel suppliers.

Mallya has said he is in discussions with overseas airlines to sell a stake in Kingfisher, after India’s government last month eased investment rules. The billionaire is also in talks to sell a stake in United Spirits Ltd, the largest distiller in India, to Diageo Plc.

Kingfisher’s founders have contributed Rs11.5 billion since April 1, Mallya told shareholders on September 26. He also gave personal guarantees totalling Rs59 billion for loans taken by Kingfisher, according to the annual report. It didn’t give the terms for the guarantees. Assets worth Rs89 billion, including brand, planes and office furniture, have also been pledged to back the airline’s loans.

Share performance

The carrier fell by the daily limit of about 5 per cent for the fifth straight day on Friday to Rs13.25. The stock has dropped 37 per cent this year. Shares of Jet Airways (India) Ltd, the nation’s largest listed carrier, and budget operator SpiceJet Ltd. have more than doubled this year.

Kingfisher has 10 planes, comprising seven Airbus SAS A320s and three Avions de Transport Regional turboprop aircraft, Arun Mishra, India’s director general of civil aviation, said October 2. It has enough staff for 60 planes, he said. The number of employees at the carrier fell to 5,696 in the year ended March 31 from 7,317 a year earlier, according to the annual report.

Bharath Raghavan, company secretary of Kingfisher, resigned effective September 30.

Kingfisher, named after Mallya’s flagship beer brand, has slumped to sixth from second in terms of domestic market share after paring services and losing passengers. It had a 3.2 per cent share in August, the lowest among six carriers.

The airline has a long-term debt-to-total capital ratio of 162 per cent, according to data compiled by Bloomberg. That compares with 58 per cent at Jet Airways and 76 per cent at SpiceJet.