That suicide by a Kingfisher employee’s wife on
Thursday because her husband had not been paid for five months and even though
the airline has got a reprieve from the banks to withdraw Rs 60 crore have cut
no ice with the striking employees indicate that a viable and long-term
solution is needed for the airline.
On Friday, the Government finally woke up to its
responsibilities and issued a show-cause notice to the airline seeking replies
in 15 days as to why its licence should not be “cancelled or suspended” as it
had failed to establish a “safe, efficient and reliable service”.
This time the airline also accepted that it had
received the notice, something which it denied when former Directorate General
of Civil Aviation (DGCA) E.K. Bharat Bhushan reportedly sent a similar notice
in March this year.
Fed up with empty assurances from the management
and the dilly-dallying of the authorities, sections of Kingfisher Airlines
employees had struck work on October 1 paralysing the airline’s operations
Consequently, the management was left with no option but to declare a partial
lockout. Though initially the partial lockout was till October 4, it was later
extended till October 12.
Little wonder then that experts are suggesting a
change in law to have something on the lines of chapter 11 bankruptcy in the
US. According to www.uscourts.gov, chapter 11 provides “for
reorganisation, usually involving a corporation or partnership. (A chapter 11
debtor usually proposes a plan of reorganisation to keep its business alive and
pay creditors over time. People in business or individuals can also seek relief
in chapter 11)”.
Long-drawn process
One significant aspect of chapter 11 is that a
company can in anticipation of its financial problems opt for this legal course
rather than waiting till it is bankrupt. Over the last few months, Kingfisher’s
management knew that the situation was going to only get worse. In hushed tones
several key people in the airline had told journalists that the situation could
not be allowed to continue beyond September. Would a chapter 11 type of
recourse have helped matters?
Of course, changing the law is not easy. In
India, the closest that we have to the US bankruptcy law is the Sick Industrial
Companies (Special Provisions) Act 1985 (SICA). SICA was enacted to take
preventive or remedial measures for sick companies. The sickness of a company
is linked to default of payment to its creditors or if a demand is made by a secured
creditor representing half or more of its debt. A board was set up under SICA
to deal with the revival and rehabilitation of sick industrial companies.
Experts, however, maintain that SICA lacks teeth and declaring bankruptcy in
India is a long-drawn-out process, which many companies are not inclined to
follow.
For one and all
Having a chapter 11 kind of law will mean that
it will have to be applicable across sectors and industries. Civil Aviation
Minister Ajit Singh told Business Line that having such a type of law in
India may be a good idea but quickly added that the law would have to be for
all, not just civil aviation. Dhiraj Mathur, Executive Director and Head of
National Aerospace and Defence Practice, PriceWaterhouseCoopers, concurs with
the Minister.
Clearly this can be nothing but a long-term
solution. And till that happens or till the Government carries out its threat
of cancelling or suspending Kingfisher’s licence, the situation will continue
to become messier. For instance, in very many ways stopping its operations is
helping Kingfisher curtail its losses pretty much in the manner in which Air
India saw its losses drop when the Maharaja curtailed its flights following a
58-day agitation by its pilots.
At a meeting with the DGCA, Kingfisher’s CEO
Sanjay Aggarwal is believed to have said that the airline was incurring a daily
loss of Rs 8 crore by operating its severely curtailed flight schedule, while
shutting the airline had brought down losses by half.
Then comes the employee dues. While many think
that the Rs 60 crore that the airline is getting could be used to pay off the
backlog of salaries, what options do the employees really have to ensure that
they are paid not only the backlog but also future salaries? While sympathising
with the plight of the employees, Government officials say that they should
look at the various labour laws in the country to get their unpaid wages.
So till such time as a permanent solution is
found, there could be many more Kingfishers where the situation will remain
going going…
The Sick Industrial
Companies (Special Provisions) Act 1985 lacks teeth and the long-drawn-out
process of declaring bankruptcy dissuades companies, say experts
http://www.thehindubusinessline.com/todays-paper/tp-logistics/article3975399.ece
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