Kingfisher Airlines Ltd, roiled by a cash crunch that’s threatening to take it apart, will this week outline a recovery plan to the aviation regulator so it can continue flying, two airline executives said.
The plan entails a further curtailing of international operations, pulling out of all loss-making routes, renegotiating high-cost aircraft lease rentals, tapping foreign loans for working capital, and getting back its $40 million deposit from the International Air Transport Association, or Iata, an umbrella body for airlines.
Kingfisher Airlines also plans to disburse salaries in a phased manner to its employees, who have not been paid since December, one of the two executives said, requesting anonymity.
The meeting is crucial for Kingfisher Airlines as it has failed to convince the director general of civil aviation (DGCA) of its ability to meet regulatory requirements in running its fleet.
The regulator has issued a show-cause notice to the airline asking why it should be allowed to continue operations. DGCA can initiate tough measures against the airline if it fails to convince the regulator about its potential for recovery, since the cash crunch can affect flight safety.
“Half-a-dozen management representatives met promoter Vijay Mallya on Friday to chart out a realistic recovery plan,” the airline executive said. “Mallya would meet DGCA E.K. Bharat Bhushan on Monday.”
Bhushan said he is free to meet Kingfisher Airlines executives to discuss a recovery plan, and that he is monitoring the airline’s operations.
A key element in the recovery plan is to get back the $40 million deposit kept with Iata, which has suspended Kingfisher Airlines for the second time in two months from the Iata clearing house (ICH) system for defaulting on payments.
Airlines use the ICH system to settle payments for interline agreements. Every Iata member is required to keep a deposit with the body for such settlements.
Kingfisher Airlines, which has not made a profit since its inception in 2005, has been cancelling flights since 17 February because of a severe cash crunch. It is operating about 100 fights a day out of its latest revised schedule of 175. A year ago, the airline used to fly 340 flights a day.
“Mallya had met Iata director general and chief executive officer Tony Tyler on Friday to discuss the issues. If Iata agrees (to refund $40 million), it will help the airline give salaries in a phased manner,” the Kingfisher Airlines executive mentioned earlier said.
Iata spokesperson Albert Tjoeng said in an email he would not disclose information on the matter as it was “commercially sensitive”.
He confirmed, though, that Tyler met Kingfisher Airlines representatives on Friday. “They discussed the participation of the airline in the Iata settlement systems, which includes the Iata clearing house (ICH), billing and settlement plan (BSP), and cargo accounts settlement system (Cass),” he said.
Kingfisher Airlines’ participation in the settlement systems will be reinstated after it fulfils the cash deposit requirements, he added.
“Even if the airline is suspended from ICH, BSP and Cass, the airline can still settle directly with other airlines, travel agents and freight forwarders. Kingfisher continues to be an Iata member in good standing,” Tjoeng said.
A Kingfisher Airlines spokesperson declined to comment.
The second Kingfisher Airlines executive said the carrier has assured its employees of part salary payments by next week. “The plan is to give salaries in phases. The December salary would be disbursed by (the) month-end. The priority would be for low-rung employees,” he said, also declining to be identified.
A Kingfisher pilot who attended a meeting with Mallya in Delhi last week confirmed that the promoter has assured disbursal of salaries. “He assured us that the payment of salary dues will be done in phases, but did not give any date for that. Mallya said he is in talks with various investors for raising funds,” he said.
The first Kingfisher Airlines executive said the airline is renegotiating the high cost of aircraft lease rentals. “Kingfisher Airlines signed many of its aircraft lease agreements when the rates were at their peak. Now, the rates have come down by 30%. The airline is making the most during the crisis,” he said. “Another option is to curtail international operations further or discontinue (them) for the time being. These steps would be finalized after the DGCA meet.”
The airline will also tap external commercial borrowings (ECBs) for working capital loans once the Finance Bill is passed and the Union budget proposal to allow airlines to raise working capital through foreign loans is formalized.
The move could potentially provide relief to most airlines in the country, including Jet Airways (India) Ltd and Air India Ltd, which, too, are strapped for funds and weighed down by accumulated debt. India’s airline industry is laden with a combined debt of $20 billion, the pre-budget economic survey said last week.
“The industry has been marred by cost inefficiencies and is bearing the brunt of aggressive price cuts, rising costs, expensive jet fuel, a weaker rupee, high interest payments and, hence, mounting losses,” rating agency Icra Ltd, said in a recent report.
Source: http://www.livemint.com
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