Kingfisher stocks rise after employees resume work

Employees get March salaries, airline looks at resuming operations in Nov, if DGCA revokes suspension of its licence
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First Published: Thu, Oct 25 2012. 11 14 AM IST
The employees agreed to the proposal by the airline to clear three months’ salaries before Diwali and the first salary due of March would be paid on Thursday, the airline said. Photo: Ramesh Pathania/Mint
The employees agreed to the proposal by the airline to clear three months’ salaries before Diwali and the first salary due of March would be paid on Thursday, the airline said. Photo: Ramesh Pathania/Mint
Updated: Fri, Oct 26 2012. 10 58 AM IST
Mumbai: Shares of Kingfisher Airlines Ltd were trading up 5.07%, at Rs 11.4 each at 10.20 am Friday, after employees resumed work.
The shares have fallen 52% in the past year.
The labour unrest at the grounded airline ended on Thursday after the company paid employees their salaries for the month of March, although the end of the strike doesn’t mean the airline can restart operations immediately.
The airline is looking at resuming operations by the third or fourth week of November, if the regulator revokes the suspension of its licence and allows it to fly. However, experts pointed out that Kingfisher Airlines requires urgent recapitalization and a credible turnaround plan to start flying again.
That’s a view shared by India’s civil aviation minister Ajit Singh, who said he welcomed the settlement between the management and employees of the airline.
“But there are other problems to address,” he said. “Kingfisher Airlines has to ensure the safety of planes and the integrity of schedules. It has to come up with a full-fledged re-capitalization plan as the airline owes money to employees, airports, oil companies and other vendors.”
Most employees, including engineers and pilots, agreed to resume work following the meeting with chief executive officer Sanjay Aggarwal in Delhi. “All Kingfisher team members are back at work and fully supportive. I sincerely thank all of them for their faith and continuing commitment,” tweeted airline chairman Vijay Mallya.
The ailing airline hadn’t paid employees since March.
“The airline has released Rs.21 crore for disbursing salaries of March,” a senior airline executive said, requesting anonymity. Employee representatives confirmed that they have received their March salaries and that they have agreed to return to work. They also clarified that employees will not hold any protest during the Formula 1 race starting later this week. Mallya, part-owner of the Sahara Force India team, is attending the race.
According to the settlement reached with the airline, employees will be paid the April salary by 31 October and that for May by 12 November. Salaries for the months of June to September will be paid once the company has been recapitalized. And from October onwards, the company will pay salaries a month late, which means the October salary will be paid by the last week of December.
Prakash Mirpuri, vice president, corporate communications, at Kingfisher Airlines, also confirmed that all employees have agreed to resume work and report for duty immediately.
“All employees are now eagerly looking forward to working together in order to restart operations very soon. We will now finalize and present our resumption plan to the DGCA (Directorate General of Civil Aviation, the regulator) and hope to get their concurrence soon,” Mirpuri added.
To be sure, regulatory and financial challenges loom for the airline.
Kingfisher Airlines can’t resume its operations because the DGCA suspended its licence on Saturday. The state-owned Airports Authority of India has also indicated that it will not allow the airline to use airport facilities until it clears dues of more than Rs.250 crore.
DGCA had asked the airline on 5 October to demonstrate why its permit to fly should not be suspended or cancelled for failing to establish a “safe, efficient and reliable service” and gave it 15 days to submit a reply.
Kingfisher had previously grounded flights until 25 October. The regulator last week rejected Kingfisher’s winter schedule, prompting speculation that flights will continue to be grounded past the deadline. Kingfisher Airlines flew 2,930 flights a week in the winter schedule last year.
As a prelude to submitting a comprehensive feasible plan, Kingfisher Airlines’ Aggarwal will meet the head of DGCA on Friday. “I am meeting Sanjay Aggarwal tomorrow to discuss the issues. We will take a call based on their plan,” said Arun Mishra, director general of civil aviation.
Employees returning to work is, hopefully, part of well-thought-out and credible turnaround plan, said Kapil Kaul, chief executive officer (South Asia), at consultancy firm Centre for Asia Pacific Aviation, or Capa.
“The key is full and urgent re-capitalisation,” Kaul said.
Kingfisher Airlines needs more than $1 billion to fully fund a turnaround business plan, Capa said in a 23 Ocober report. The immediate requirements to actively re-launch the airline—as opposed to operating a skeleton fleet of five aircraft—have also increased from an earlier $600 million to closer to $700 million, Capa said.
Kingfisher Airlines has $2.5 billion of liabilities, of which $1.1 billion is bank debt. Banks may be able to recover some of their loans depending on the quality of the collateral in place but this is likely to be a long-drawn process and risks are inevitable, Capa said in its report.
The remaining $1.4 billion of liabilities to vendors and employees is largely irrecoverable except for some secured debt where airport operators and oil companies hold bank guarantees that could be invoked.
“We will be meeting DGCA next week and will submit a full plan, including recapitalization,” said a senior Kingfisher Airlines executive on condition of anonymity. “We will ensure that DGCA is satisfied with our replies regarding our resumption of services. We will not be aiming at putting planes back into the air (immediately), but we will be slow and steady.”
He did not disclose details on recapitalization.
“Everything will be in the comprehensive plan. Our biggest concern was labour unrest. We have tackled that. We will address things, one-by-one,” he said.
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First Published: Thu, Oct 25 2012. 11 14 AM IST
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