Kingfisher Airlines Defaults on Payments to Airport Operator

NEW DELHI -- Cash-strapped Kingfisher Airlines Ltd. has defaulted on 1 billion rupees ($19.5 million) of payments to the Airports Authority of India, prompting the state-run airport operator to ask for more bank guarantees.

Pedestrians walked in front of a billboard of Kingfisher airlines in the southern Indian city of Bangalore, 15 November 2011.

"We have already encashed 1 billion rupees worth of guarantees given by Kingfisher against its dues," Airports Authority Chairman V.P. Agrawal said late Monday. The authority has sought additional bank guarantees from Kingfisher to cover its remaining arrears of 2.17 billion rupees, he said.

The development adds to the financial woes of the debt-ridden carrier that has never made a net profit since its inception in 2005. Kingfisher, like other airlines in India, has been severely hit by rising jet fuel prices, high interest costs on its debt and unprofitable flights. The carrier has recently cut dozens of flights to reduce costs and has sought additional working capital loans of up to 8 billion rupees from banks to remain operational.

But lenders' confidence in the airline has been deteriorating due to its declining ability to repay loans. That might deter banks and other financial institutions from providing fresh guarantees for Kingfisher's arrears.

Kingfisher underwent a debt recast earlier this year by issuing shares to lenders. The company cut its debt by 22% to 60.07 billion rupees by converting its loans into shares that were issued to lenders and its founder companies.

Problems for the airline will likely compound in case lenders refuse to issue guarantees to cover the Airports Authority's dues, forcing the carrier controlled by billionaire Vijay Mallya to ground more flights.

A Kingfisher spokesman didn't respond to an e-mailed query, but Mr. Mallya said last week that the airline hadn't asked the government or the lenders for a bailout package.

An airline issues bank guarantees to the Airports Authority for services such as landing and parking at several airports controlled by the airport operator. The authority can encash the guarantees in case a carrier defaults on its payments.

Mr. Agrawal also said the Airports Authority would decide in the next few days on its future course of action after consultations with officials from the civil aviation ministry.

"We will see what can be done if Kingfisher fails to provide bank guarantees," he said. "Putting Kingfisher on cash-and-carry is an option. We are studying it. It's not the best option as it sends flight schedules haywire."

Separately, a senior aviation ministry official, who declined to be named, said that Kingfisher has submitted a new flight plan to sector regulator Directorate General of Civil Aviation and that the airline "has indicated that normal operations will be restored within four to five months."

The official declined to elaborate on the revised flight schedule.

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