Wednesday, March 07, 2012

Gasping for air: Kingfisher, Jet, And Air India descend into chaos over mounting liquidity problems and pilot trouble

Kingfisher Airlines (KFA), which is staring at terminal financial illness, suffered a crippling blow on Wednesday.

The International Air Transport Association (IATA) ordered over 30,000 of its affiliated travel agents to stop booking tickets for the airline over its failure to settle outstanding dues since February - a move akin to the RBI removing a commercial bank from its currency clearing system.

Alarmingly, the rot has metastasized to other players in the aviation sector.

One such carrier is Jet Airways. It reported protests from employees over delayed salaries and other emoluments.

Another is the state-run Air India.

Bleeding under a mountain of debt, it also almost simultaneously found its pilots agitating vociferously over the non-payment of salaries.

Claiming that the management had set itself a deadline of March 31 to clear their dues, they threatened to go on a strike from April 1.

The employees of Kingfisher and Air India have remained unpaid for over three months. The KFA was dealt two additional jolts on Wednesday.

First, the income tax department froze more bank accounts of KFA for non-payment of dues.

Then, oil companies switched off its fuel tap stopping supply across airports over unpaid dues to the tune of Rs 770 crore. Even as sources said negotiations were on, six Kingfisher flights at Mumbai airport were delayed because of no fuel supply.

'IATA has suspended Kingfisher Airlines' participation in the IATA Clearing House (ICH). This is because the airline did not settle its ICH account within the stipulated deadline,' IATA announced in a statement.

This development will handicap the airline's ticketing as over 85 per cent of bookings for domestic and international flights is done by agents.

It puts a question mark over whether tickets for the carrier can now be booked using globally interconnected systems such as Galelio, Sabre and Amadeus. Capt. G.R. Gopinath, founder of India's first low-cost airline Air Deccan was of the view that airlines were themselves partially and, in some cases, largely responsible for the crisis they were facing today.

'They have failed to build a sustainable aviation model suitable for the country.

Therefore, there is no apparent need for the government to intervene in terms of writing off individual loans or sinking more taxpayers' money to bail out Air India,' he pointed out.

'But none of the government's stimulus plans has had any positive impact on the aviation sector because they are not manufacturers, nor are they considered infrastructure providers,' Gopinath added.

DEEPENING CRISIS

FEB 2, 2012 IATA bars Kingfisher from ticket clearing house system, but reinstates it eight days later

FEB 20 Govt rules out bailout to KFA; abrupt cancellation of dozens of flights cause hardships to fliers

FEB 21 SBI offers Rs 1,500-cr lifeline to KFA; I-T dept defreezes some of its accounts; DGCA chief sets 24-hour deadline for the carrier to come up with a realistic flight schedule but rules out punitive action

MARCH 1-2 Service Tax dept freezes 40 bank accounts for failing to clear dues of Rs 40 cr by Feb 29

MARCH 7 IATA suspends KFA for nonpayment of dues; I-T dept freezes 19 more accounts & issues show-cause notice for not paying tax arrears, oil companies stop fuel supply to KFA

Air India's former executive director Jitendra Bhargava told Mail Today: 'Most airlines are in deep financial distress because the operational climate is not conducive for profitability.'

Elaborating further on the issue, he said: 'With the aviation turbine fuel prices (which make up 42 per cent of the operating costs) 50 per cent higher than those in the rest of the world and fares much lower than global levels, airline companies are only bleeding, some even haemorrhaging badly.'

A strong indication of this came from Naresh Goyal-promoted Jet Airways where the airline's pilots started an indefinite protest owing to a delay in payment of their salaries over the last four months. On Wednesday, the pilots wore black badges as a mark of protest though they reported to work. Reacting to this news, the Jet Airways stock plunged 4 per cent at the BSE, even as it made up to some extent later to close at Rs 278.80, down 0.84 per cent.

'There is no reason why salary payment should be delayed. We have found out that the management is spending a lot of money elsewhere and deliberately delaying salary payments. We will make it public at the right time. We are not going to call a strike; we are only protesting,' a senior Jet Airways captain said, asking not to be identified.

Industry experts expect IATA's move to affect up to 35 per cent of KFA's business. 'Kingfisher's participation in the ICH will be reinstated after the airline fulfils ICH requirements,' IATA specified.

'As of now, KFA cannot settle its transactions with other ICH members through the clearing house. The carrier can function by settling with its partners on a bilateral basis,' IATA, an association that has all passenger and cargo carriers as its primary members, said.

IATA had previously barred Kingfisher from its ICH on February 2, but reinstated it eight days later after some payments were made. The action also comes in the wake of KFA abruptly cancelling scores of flights for over three months and inconveniencing fliers owing to financial difficulties.

KFA, for its part, said: 'Owing to the bank accounts getting attached by the tax authorities, we were not able to make a payment to ICH.

This resulted in a temporary suspension. We are working with the tax authorities and expect the accounts to be unattached shortly. As soon as this is done, we will pay our dues to IATA and get reinstated.'

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