This Article is From Oct 05, 2012

Kingfisher Airlines faces possible shutdown: Top 10 developments

New Delhi: Kingfisher Airlines faces a possible shutdown with aviation regulator DGCA issuing it a show cause notice today asking why its license should not be suspended or cancelled. This after the carrier has had to extend its lockout till October 12 and said that its fleet would remain grounded till then. Talks with engineers and pilots on strike have failed; the Kingfisher employees are protesting against non-payment of salaries since March this year.

Here are the 10 latest developments on the story:

  1. The DGCA (Directorate General of Civil Aviation) show cause notice said the airline had failed to establish a "safe, efficient and reliable service", and asked it to respond within 15 days. The airline has not operated a single flight since Monday.

  2. Kingfisher released a statement this evening saying they will reply to the notice well in time. "We have received a show cause notice from the DGCA which we have to reply to within 15 days. We will send a detailed response to the DGCA well in time. We will also submit a comprehensive plan for restoration of services after negotiations with our employees," said the statement.

  3. Angry Kingfisher staff in Bangalore reportedly refused to attend a meeting with the management today. The airline also had to cancel its meetings in Bangalore and Chennai scheduled for today. Talks between the airline management and Delhi-based pilots and engineers had failed on Thursday and similar talks in Mumbai on Wednesday ended in what a senior pilot called a stalemate.

  4. Lenders to Kingfisher Airlines have agreed to release Rs. 60 crore from an escrow account to keep the airline afloat. The airline needs Rs. 55 to 60 crore to pay salaries for two months. An escrow account, which prevents a default in loan obligations by a company, ensures that funds received by a company cannot be accessed by it but goes directly to the lenders.  After a restructuring of loans to Kingfisher Airlines in 2010-11, its lenders had taken charge of cash flows, including funds received through ticket sales.

  5. Civil Aviation Minister Ajit Singh told NDTV today that the airline will not be allowed to operate until it gets a go-ahead from the DGCA. "They (the pilots) were hopeful, they were ready to keep working, they thought things will change," the minister said. He also stressed that passenger safety can never be compromised, nor should passenger schedule be affected. He even cited examples of other airlines that have shut shop, such as Damania, Modiluft and Paramount. "Given all the problems, not everyone is going the Kingfisher way," he said.

  6. In Delhi and Mumbai, staff of the Vijay-Mallya promoted airline staged demonstrations wearing black bands and carrying placards and, in Delhi, candles to demand speedy disbursal of their dues. The protests came after the wife of a Kingfisher employee committed suicide in New Delhi on Thursday. Police said she left a suicide note in Bengali that said: "My husband and son are very caring and I love them. My husband works with Kingfisher where they have not paid him salary for the last six months. We are in acute financial crisis and so I am committing suicide". She also wrote that she feared her husband would lose his job."

  7. The airline, which had earlier declared a lockout and grounded all operations till October 4, extended these by another eight days blaming the staff for the situation last night. "We regret that the illegal strike has still not been withdrawn and normalcy has not been restored in the company, thereby continuing to cripple and paralyse the working of the entire airline," spokesman Prakash Mirpuri said in a statement late on Thursday.

  8. The Centre for Asia Pacific Aviation (CAPA), which estimates Kingfisher's debt at around $2.5 billion, said a fully funded turnaround would cost at least $1 billion and that Kingfisher had only an outside chance of recovery given its massive debts, crippled fleet and poor employee morale.

  9. With about 4,000 staff, Kingfisher's wage bill works out to approximately Rs. 30 crore a month. Of the total 4,000 employees, 2,000 have received salaries until March. From April, there have been no salary payments. So while the Rs. 60 crore from the escrow account can cover payments for two months, it is unlikely to improve the situation, given that staff has demanded payment of all outstanding salaries.

  10. About 17 banks - led by the State Bank of India - collectively have an exposure of Rs. 7,000 crore to the airline. That apart, the lenders together hold around a 23 per cent stake in the airline since March, after the banks converted their Rs. 6,500 crore of recast debt (after a corporate debt restructuring, or CDR, in November 2010) into equity. Even monetizing the collaterals will not be enough to cover 10 per cent of the outstanding dues, an official at a public sector bank said yesterday.



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