DGCA suspends Kingfisher Airlines licence5 min read . Updated: 21 Oct 2012, 07:50 PM IST
Airline stops all bookings; says it is trying to resume operations
Airline stops all bookings; says it is trying to resume operations
Mumbai: The Directorate General of Civil Aviation (DGCA) has suspended the air operating licence of Vijay Mallya- controlled Kingfisher Airlines Ltd till further orders.
“We have suspended the licence of Kingfisher Airlines till further orders," Arun Mishra, director general of civil aviation told Mint.
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 its reply.
The carrier on Friday said it had replied to the showcause notice on why its licence should not be suspended. The regulator had not been satisfied with the replies.
Kingfisher said in a statement that the regulator’s order is not a cancellation but a “temporary suspension" which is valid only till it submits a “concrete and reliable revival plan to the satisfaction of DGCA".
The airline, which has been locked out since 1 October and had hoped to resume flights on 6 November, said in Saturday’s statement that it was suspending all bookings till it can resume operations. “It is our endeavour to re-start operations at the earliest and we assure you we are working towards achieving this,’’ the statement said.
Kingfisher had previously grounded flights until 20 October.
The regulator on Wednesday rejected Kingfisher’s winter schedule, prompting speculation that flights will continue to be grounded past the 20 October deadline. Kingfisher Airlines flew 2,930 flights a week in the winter schedule last year.
Director general Mishra said Kingfisher Airlines can fly after it provides a feasible flight plan.
Previously, the licence of Paramount Airways was cancelled in 2010 after the planes it had flying dropped below five. The airline hasn’t resumed operations.
In an August report, consulting firm Centre for Asia Pacific Aviation (Capa) said Kingfisher Airlines is facing the prospect of an operational shutdown, possibly temporarily, to allow it to restructure and reorganize, without an investment of approximately $600 million (Rs 3,210 crore today) in the next 30-60 days, and access to a further $400 million over the next 12-18 months to fully fund its business plan.
“Kingfisher Airlines’ suspension (of licence is) on expected lines. A informal suspension two weeks back has been formalized," said Kapil Kaul, chief executive officer (South Asia) at Capa.
Kaul said this will allow Kingfisher Airlines time to consider a complete revival or assess damages on account of a possible closure rather than restarting five aircraft operations.
“I think restarting five aircraft operations without a significant recapitalization of $600 million immediately is meaningless. Capa expects a Kingfisher Airlines turnaround to cost $1 billion. The revival of Kingfisher Airlines was earlier and now as well totally dependent on Kingfisher Airlines promoters raising $600 million, which is highly unlikely," he said.
“Every stakeholder must take note of their risk positions due to a possible closure. The UB Group needs to prepare for an onslaught of legal cases," Kaul said.
The UB Group is the parent company of Kingfisher Airlines.
Kingfisher Airlines employees are unperturbed. “In any case, the planes were not flying. So it is natural that the licence would be suspended. (But) the licence is only suspended, not cancelled. If the airline presents a satisfactory reply to DGCA, the airline can fly," said a senior engineer at Kingfisher Airlines, requesting anonymity. He said the employees are waiting with positive hope, adding: “We can only do that, and management had assured a way out."
Kingfisher Airlines employees have not been paid since March.
According to Capa’s August research, Kingfisher Airlines has a total debt of $2.49 billion including bank debts (approximately $1.1 billion), promoters debts, trade debts and other short term liabilities apart from accumulated losses of $1.9 billion as on 30 June 2012. Capa research added that the promoter contribution is approaching $1 billion as on 31 August as well as UB Group securities of which $220 million has been infused in the last three to four months.
From 1 October, when the employees launched an indefinite strike, the shares of Kingfisher Airlines dropped 28.79% from ₹ 16.12 a piece to ₹ 11.45 and the benchmark index, Sensex lost 0.43% from 18672.74 to 18682.31 points for the period.
Calls made to chief executive officer Sanjay Aggarwal did not yield any results.
Another senior Kingfisher Airlines executive, requesting anonymity, said the top management will meet on Saturday and Sunday, to decide the future course of action in consultation with airline chairman and managing director Vijay Mallya.
Meanwhile, a group of 17 banks, led by State Bank of India, will take a final call on this month about the carrier and its dues.
“We have given him a month’s time to come out with a revival plan. We are not concerned where is Mallya and what is his lifestyle. We will give him time till this month to come out with a realistic revival plan including equity infusion by promoters and investors. Else, we will be forced to recover money from the pledged assets," said a senior executive with a public sector bank, requesting anonymity.
“Sad. It could have been avoided if either Mallya had tried to do whatever he is doing now two to three years earlier when he had a network of close to 100 aircraft by diluting himself to 5% or 10% in favour of foreign private equity or some other buyer and saved the airline or the banks could have moved in six and nine months ago before the airline disintegrated," said G.R. Gopinath, founder of Air Deccan, the first low fare carrier of India.
Air Deccan was sold to Vijay Mallya’s Kingfisher Airlines in 2006. “It would have been worth it even if they had recovered only ₹ 1,000 crore as against of writing off ₹ 10,000 crore and saved the airline and jobs and benefited passengers," Gopinath added.
Kingfisher Airlines has pledged assets, ranging from its brand to office furniture, for ₹ 6,400 crore in bank loans. The assets, including a villa in Goa, two helicopters, the Kingfisher House building in Mumbai and shares, have been shown as collateral for loans as of November 2011, junior finance minister Namo Narain Meena told Parliament in December.
The airline hasn’t shown a profit since its inception in 2005.
“The suspension of KFA’s licence is unfortunate but not unexpected. It is symptomatic of the deep distress that the sector is currently in,’’ said Amber Dubey, partner and head-aviation at global consultancy KPMG. He cautioned that with the government is not taking comprehensive reforms, the sector may see more casualties.
Dubey said Kingfisher Airline’s ability to bounce back from this situation appears challenging.
‘’It means deep distress for its employees, creditors and lenders. Lenders are the worst hit since they may have to take a significant write-down of the loans that have gone bad. Creditors like oil companies, airport companies, service providers and employees may also have to forego their dues,’’ Dubey added.
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