By DANIEL MICHAELS And MEGHA BAHREE
Airplane-leasing companies are preparing to repossess planes from India's Kingfisher Airlines Ltd. if the troubled carrier's finances deteriorate further, said an executive at one of the companies.
The executive said that at least two lessors have agents at Kingfisher's offices copying documents relating to their planes. These agents also are monitoring the debt-laden airline's planes to ensure that parts aren't removed in ways that violate lease terms.
Kingfisher spokesman Prakash Mirpuri said in an email that "all leasing companies have the contractual right to access the documents for all their aircraft on an 'as needed' basis."
Every commercial aircraft has reams of records about its use and maintenance. If the information is missing or incomplete, an otherwise usable jetliner could be grounded for safety reasons. Copying documents is a precaution in case the planes are repossessed and it is impossible to recover their accompanying records, aviation officials said.
Kingfisher, which is controlled by Indian business mogul Vijay Mallya, has been hammered by increasing costs, including high interest payments on its nearly $1.3 billion in debt and a 70% jump in fuel prices in the past year. It recently canceled flights on some routes to cut costs and reported a loss of $92.4 million in the quarter ended Sept. 30.
One major lessor, AerCap Holdings NV, will take back two jetliners in coming months when the contracts on them expire because "we could not agree on mutually acceptable extension terms," Mr. Mirpuri said. One of the planes will be replaced with a new one, he said.
An AerCap spokeswoman wasn't available for comment.
Kingfisher was one of several airlines that began operations after India deregulated its airline sector almost a decade ago. Demand for air travel surged following the move and has remained robust, thanks in part to fierce competition. Domestic passenger traffic increased to 51.6 million in 2010 from 11.7 million in 2003, and is expected to hit 60 million this year, according to the government, .
But low ticket prices, high oil prices, the weakening Indian rupee and heavy debt have caused havoc in the industry. Kingfisher hasn't reported a quarterly profit since it started operating in 2005.
"This entire growth is without any profits because the fares are artificially kept low," said Dinesh A. Keskar, president of aircraft maker Boeing Co.'s Indian unit.
Industry officials say that Indian carriers are sacrificing profits to gain market share by setting fares below costs. A similar dynamic ravaged the U.S. airline industry following deregulation in 1978 and contributed to the bankruptcy of many carriers.
Kingfisher and India's other up-market airlines also have suffered from the rise of low-fare carriers in the past few years. So far this year, four out of five Indian travelers have chosen low-cost carriers over full-service airlines, said Mr. Keskar. "Going forward, airlines will have to align their business models with customer needs," he said.
In addition to Kingfisher, India's full-service airlines include state-owned Air India Ltd. and market leader Jet Airways Ltd.
Mr. Mallya, who controls one of the world's largest liquor companies, United Breweries Group, has said that India's aviation sector needs help and foreign airlines should be allowed to invest. The government is considering a proposal to allow foreign direct investment of up to 26%.
If leasing companies end up taking planes back from Kingfisher, it wouldn't be a first. In 2008, General Electric Co.'s aircraft-leasing unit took back four planes when Kingfisher defaulted on rental payments, a person familiar with the matter said. GE Commercial Aviation Services had leased the planes to low-cost carrier Air Deccan, which Kingfisher acquired in 2007.
Kingfisher declined to comment on the episode.
Lessors prefer not to repossess planes if they can avoid it. While models such as the Airbus A320s that Kingfisher flies are popular around the world, and so can be placed with other airlines, lessors prefer to organize such transfers long in advance. Repossessed planes often need significant maintenance because cash-strapped airlines often fall behind on the required upkeep. As a result, a lessor's cost of repairs can be significant.
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