Home / Companies / News /  Kingfisher files $234 mn lawsuit against US-based aircraft engine maker

Mumbai: United Breweries (Holdings) Ltd, the holding company of grounded Kingfisher Airlines Ltd, has filed a lawsuit against aircraft engine maker International Aero Engines AG claiming $234 million in damages, the airline said in its 2012-13 annual report released on Monday.

In a suit filed in a civil court in Bangalore, United Breweries has said the IAE V-2500 A5 engines supplied by the US-based company to Kingfisher Airlines were “inherently defective, both in design and manufacture."

The airline has claimed $210 million plus $24.56 million in damages, and reserved liability to claim further damages.

Kingfisher also said it is in discussions with a potential investor for a two-phased revival plan.

The Vijay Mallya-controlled airlines’ operating licence was suspended in October by the Directorate General of Civil Aviation (DGCA) following a strike by its employees. The permit has since expired, although it can be renewed within two years.

The plan has been shared with lenders, “who however have been generally un-supportive" of efforts to revive the airline, causing further hardship, the airline said.

“Nevertheless, your company diligently continues its efforts to bring in fresh infusion of funds...and discussions with various prospective investors are under way, despite the persistent negative media statements being made by the lenders about your company as well as the hostile recovery action initiated by the lenders proving to be a major concern for these investors," Kingfisher Airlines said in the annual report.

A group of 14 lenders led by State Bank of India expects to recover at least 1,000 crore from Kingfisher Airlines as it starts taking possession of buildings, helicopters and other fixed assets of the grounded airline.

The consortium collected 550-600 crore by selling pledged shares of associate companies of Kingfisher Airlines’ parent UB Group. And in August, it took possession of Kingfisher’s headquarters at Vile Parle in Mumbai. The company said it is seeking legal advice on this matter.

The bankers filed a claim on 3 May under the Sarfaesi (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act to recover dues. Under the claim, the bankers gave a 60-day notice to the airline, which expired on 1 July. They started procedures for taking over properties and other assets in the first week of July in consultation with the Debt Recovery Tribunal (DRT).

The airline said it is consulting its legal advisers to protect its interests in proceedings of the DRT.

“Despite suspended operations and suspension or subsequent expiry of the SOP (scheduled operating permit), your company engaged in dialogue with several Asian carriers for a potential investment... Some of these discussions matured to the level of detailed and extensive due diligence on your company and a written offer of investment," the annual report said.

“However, due to political uncertainty in India, constant negative media statements made by the lenders about your company as well as hostile recovery action initiated by the lenders, those discussions did not fructify into an investment," it said.

It added that the airline is in dialogue with several investors and believes that there is a rationale for investment for various strategic and non-strategic investors.

“As on the date (14 August) of this report, your company is engaged in discussions with one such potential investor," it said.

According to the annual report, phase 1 of the recovery (a limited restart plan) involved restarting the airline’s operations with a limited fleet of seven aircraft (five Airbus and two ATR planes), gradually increasing to 21 aircraft (10 Airbus and 11 ATRs) in 3-4 months.

UB Group has offered to organize funding of about 650 crore to implement this phase.

The second phase (full recapitalization) envisages bringing a new investor with fresh capital, the report said. This plan will address the issues of debt restructuring, servicing, and repayment.

With regard to the Kingfisher Airlines brand, the annual report said, “A recent brand valuation conducted by Grant Thornton put the brand value at $550 million once the airline business becomes operational."

Shares of Kingfisher Airlines rose nearly 5% to 3.63 on BSE on Monday, while the exchange’s benchmark Sensex gained 1.43% to 18,886.13 points.

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