Kingfisher skids back to square one as staff meetings cancelled

A consortium of lenders, led by SBI, agreed to release funds from an escrow account to keep the airline afloat, sources said. An escrow account is one where a party parks money that does not belong to it but to another entity. The escrow account helps keep the party's own money and the other entity's money separate. In some cases, the escrow account is managed by a third person. The airline needs Rs. 55-60 crore to pay its staff salaries for two months. (Read: Kingfisher Airlines gets funds but staff crisis hits another low)

The airline's management committed to continuing negotiations with its pilots, technicians and other staff in a bid to defuse the crisis over non-payment of salaries since April this year. The management, which was to meet its Bangalore employees at 4 p.m. today, was also going to negotiate on future salary payments. However, sources said the employees have refused to meet with the management. As a result, the meetings in Bangalore and Chennai scheduled for today have been called off. Talks between the airline management and Delhi-based pilots and engineers on Thursday failed to resolve the standoff. Similar talks in Mumbai on Wednesday too ended in what one senior pilot called a stalemate.

Meanwhile, the embattled airline yesterday announced it will ground its fleet for another week after failing to resolve an impasse with staff over salaries that have not been paid for more than half a year. "We regret that the illegal strike has still not been withdrawn and normalcy has not been restored in the company, thereby continuing to cripple and paralyse the working of the entire airline," spokesman Prakash Mirpuri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. He said the airline was extending what it describes as a partial lock-out to October 12, "or up to such earlier date on which the said illegal strike is called off."

After a Reuters report cited Kingfisher Airlines vice-president of corporate affairs Sanjay Bahadur as saying that he expects about 100 pilots and engineers in Delhi to return to work in four-five days after the airline resumes operations, the airline staff issued a statement that the statement "was an attempt by the management to hoodwink the media, DGCA and flying passengers". The statement added: "As per the stand taken at Mumbai yesterday, none of the non-management pilots and engineers will return to work unless all standing dues are cleared." Mr. Bahadur was also quoted as saying that the airline expects to pay salaries for March within a week. (Read: Kingfisher Airlines extends lockout till October 12)

But in order to fly again, the airline must convince not just unhappy employees, but also the aviation regulator, the Directorate General of Civil Aviation (DGCA), which has made clear that its permission is necessary for Kingfisher planes to take off again. The DGCA wants a viable operations and recovery plan from the airline. And it also wants salaries paid before it gives its nod.

The DGCA has maintained that no aircraft will be allowed to take off unless the airline's engineers certify the plane fit to fly. And because it is the engineers who make sure the plane is fit to fly, the fleet has been grounded. (Read: Kingfisher Airlines expects to start operations in 4-5 days, says vice-president)

The government is taking a tougher stance now after allowing the airline to operate for months without paying salaries, although it has stopped short of forcing a closure of the heavily indebted carrier. Civil Aviation Minister Ajit Singh on Thursday said the government needs concrete plans, not status reports, from the airline on how it will operate, maintain schedule and if its aircraft are safe to fly. The ball is in Kingfisher's court, he added.

In an interim report on Kingfisher submitted to the government on Wednesday, the aviation regulator has reportedly focused on security and the salary issues. Sources say that it has observed that safety of operations has been seriously jeopardised. The regulator is also believed to have said that non-payment of salaries is a matter of serious concern, and not only for the employees as it has also affected safety-engineers and pilots are crucial to safe airline operations. The DGCA reportedly holds that the whole winter schedule of Kingfisher, including routes and landing spots, needs to be looked at by the end of October and landing spots have to be considered afresh. (Read: Aviation regulator submits report on Kingfisher Airlines)

Meanwhile, the lenders will be the bigger casualty if the airline were to go bust. About 17 banks -- led by the State Bank of India -- collectively have an exposure of Rs. 7,000 crore to the airline, of which SBI has an exposure of Rs. 1,400 crore. Other lenders include IDBI Bank (Rs. 727.63 crore), Punjab National Bank (Rs. 710.33 crore), Bank of India (Rs. 575.27 crore) and Bank of Baroda (Rs. 537.51 crore). An official at a public sector bank said the lenders will not be able to recover even 10 per cent of their outstanding loans to the airline by monetizing their collaterals. The Vijay Mallya-owned airline and its promoters have most of their shares and assets pledged with banks, including the brand Kingfisher (pledged for a value of Rs. 4,100 crore) and two of its properties-the Kingfisher Villa in Goa and the Kingfisher House in Mumbai-together valued at around Rs. 200 crore. (Read: Kingfisher lenders hope airline management won't let go belly up)

Before the shutdown, Kingfisher was operating just 10 planes out of a fleet that once numbered 64, according to the DGCA. According to Indian rules, an airline has to fly at least 5 planes to retain its status as a scheduled carrier. The airline is saddled with a huge loss of around Rs. 8,000 crore.