'King'fisher in bad times

'King'fisher in bad times

The company’s steep decline speaks of problems plaguing the aviation sector.

Kingfisher’s fleet has been grounded since the beginning of the month when a staff protest turned violent. AP

From the summer of 2005 - when Kingfisher Airlines entered Indian skies and grew quickly to become number two in the country - to the Spring of 2012, when its entire fleet was grounded and licence suspended for failing to fix its finances, the airline’s troubles are increasing by the day and a revival anytime soon looks far-fetched.

Hit by high fuel prices, fierce competition from its peers, humongous debt and bleeding international operations, Kingfisher’s fortunes were on a decline ever since it began flying, but managed to keep itself afloat for a long time despite the all-round pressures.

Torrid times for the airline, which hit the skies aggressively by taking over the then leading low-cost carrier Air Deccan, began early this year when tax department froze its accounts for non-payment of its tax arrears. This followed impounding of their aircraft at Heathrow Airport in London and launch of legal proceedings by noted airport operator GVK in a cheque bounce case in June.

The problems aggravated when the airline stopped paying remuneration to its staff, leading to work strike by pilots and other employees climaxing in the suicide of the spouse of an unpaid employee, mass cancellation of flights and rising safety concerns. For quite sometime, the debt-hobbled airline claimed that the disruption in flights were due to unexpected events, including bird-hit. But, soon the crisis started magnifying when the airlines grounded more and more planes.

Kingfisher Chairman Vijay Mallya, the self-proclaimed ‘King of good times’ famed for owning one of the world’s most expensive yachts, cricket and Formula One motor-racing teams, not to mention his flamboyant lifestyle, was denied more credit by his lenders whom his airline owed close to Rs 13,000 crore. Among his prime lenders are banks, leasing companies, fuel suppliers and the shareholders of his company, who are struggling to recover their debt.

Now, according to aviation experts, the problems look myriad and chances of revival remote. Even if the licence suspension is revoked and the airline is permitted to fly again, its financial woes may not be over and it may have to pay more than it earns owing to high cost of jet fuel and low seat occupancy on its flights.

A senior aviation ministry official said that the airline may lose less when its planes are on ground. According to him, Kingfisher loses Rs 8 crore every day when it flies, and Rs 4 crore every day when it doesn’t.

In Civil Aviation Minister Ajit Singh’s own words, the liquor tycoon may find it “very difficult” to revive Kingfisher. The airline has failed to pay taxes and also defaulted on lease and airport fee payments.

Kingfisher’s 4000 employees, who had stopped work for non-payment of salaries since March this year, have resumed duties after the management gave an assurance that it will clear part of their arrears as early as possible, immediately lifting the 25-day-old lockout of the firm. The airline’s shares, which plunged close to 5 per cent after its operating licence was suspended, rose equally high after employees agreed to resume work.

What next?

The move has also brought temporary relief to Mallya as the employees have agreed not to hold their proposed protest at the venue of Formula One race on Sunday. But, what next?

Analysts say, raising funds remains the most palpable problem for the airline, which has failed in its attempts since last year and none of the foreign investors have evinced interest in the carrier even after the government’s decision to allow foreign carriers to buy 49 per cent stake in Indian airlines. The management of Kingfisher has agreed to clear part arrears of employees, but said the rest will be cleared once it raises cash.
On an average, Kingfisher makes a payout of about Rs 20 crore a month towards salaries of about 4,000 employees. Where from will it raise fresh funds remains an unanswered question.

Analysts view Kingfisher’s announcement of part payment of salaries to staffers as its game plan to restrain employees from protesting at the venue of Formula One race and avoid possible embarrassment to Mallya. “The problems are far from over,” said one aviation expert.

For Mallya, hopes are still alive. His airline has spoken to two airline investors and an institutional investor to help it bail out of the financial rut, according to airline sources.
But the beleaguered airline, which harbours the hope of being back in the skies soon, could not submit a credible revival plan to the aviation regulator in its latest meeting on Friday and sought some more time. Kingfisher CEO Sanjay Agarwal, who met DGCA chief Arun Mishra, also said that the airline will fund its revival through its own resources.
A government official said Mallya’s UB Group will invest in Kingfisher to help revive operations. But, for the revocation of licence suspension, the carrier must prove it has adequate funds to pay airports, fuel suppliers and other vendors.

Added to that, the DGCA asked Kingfisher’s management to take on board all its stakeholders like Airports Authority of India, other airport operators, oil companies and Maintenance, Repairing and Overhaul operators to support the airline’s revival plan.
The airline has been asked to submit its winter schedule, taking into account the number of aircraft it has in its fleet. But official sources said, the DGCA is  unlikely to give them permission to fly until the airline satisfies the regulator on all counts. “If need be, the regulator will talk to airport operators, fuel suppliers and others involved, and its (DGCA’s) satisfaction will depend on the satisfaction of stakeholders,” a senior official told Deccan Herald.

But another senior official also told the paper that it was in the interest of the country, the airline, its lenders, the employees and thousands of travellers to let the airline fly and offer healthy competition. “Why should the government clip its wings if the airline is providing healthy competition,” he asked, adding that cancellation of the airline’s licence was unlikely.

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