When the
troubles of Kingfisher AirlinesBSE -0.69 %first surfaced, it
was essentially promoter Vijay Mallya's headache. The seven-year-old airline
had not made a profit since inception, but that was the least of the carrier's
worries.
Losses began to pile. Soon, employees felt the heat because of unpaid salaries for months. In no time, the carrier's problems consumed passengers, thanks to frequent cancellations, forcing the government to ground the airline in October. By then, the Indian air traveller was already feeling the pinch of soaring fares. Rival airlines exploited the absence of Kingfisher to the hilt — India today has low-cost airlines; it would be preposterous to call them low-fare. Kingfisher had inevitably become Indian aviation's headache.
Deploying more planes by existing airlines or the launch of potential startups would ease the pain. But Indian carriers are woefully short of planes. In an earlier interview, Aditya Ghosh, president of low-cost carrier IndiGo, said: "Few realise that the US has 11,000 commercial planes. We have 440 commercial planes — that is international, domestic, turboprop, big planes and all airlines put together. It is nothing."
The Indian airport authorities have charged the aircraft owners for debts owed to them by Kingfisher and have been able to prevent the rightful owners from removing their aircraft out of India.
---- Tony Griffin, managing director, Phoenix Aircraft Leasing Pte Ltd
A few carriers such as GoAir and IndiGo have placed huge orders — 72 and 180 A320 Airbus aircraft each — but planes do not arrive by bucket loads. The acute shortage is evident in the inability of airlines to fill the arrival and departure slots vacated by Kingfisher. Before its licence was suspended on October 20, 2012, Kingfisher held 400 slots. The airline applied and received 120 slots for the winter schedule from October 30, 2012, to March 30, 2013, post suspension. Even those slots are not being used by rival carriers, according to officials of airlines, airports and aviation ministry.
The Kingfisher crisis has also hit investors looking to launch airlines. Shyson Thomas, promoter of Air Pegasus, was looking to start a regional airline in the south last October. He is still hunting for aircraft. "Globally, airlines want to only operate aircraft; seldom do they buy." Thomas says he has been talking to aircraft lessors in Spain, France, Germany, Denmark, the UK and Singapore for months, but to no avail. "They do not want to lease it to Indian companies."
Losses began to pile. Soon, employees felt the heat because of unpaid salaries for months. In no time, the carrier's problems consumed passengers, thanks to frequent cancellations, forcing the government to ground the airline in October. By then, the Indian air traveller was already feeling the pinch of soaring fares. Rival airlines exploited the absence of Kingfisher to the hilt — India today has low-cost airlines; it would be preposterous to call them low-fare. Kingfisher had inevitably become Indian aviation's headache.
Deploying more planes by existing airlines or the launch of potential startups would ease the pain. But Indian carriers are woefully short of planes. In an earlier interview, Aditya Ghosh, president of low-cost carrier IndiGo, said: "Few realise that the US has 11,000 commercial planes. We have 440 commercial planes — that is international, domestic, turboprop, big planes and all airlines put together. It is nothing."
The Indian airport authorities have charged the aircraft owners for debts owed to them by Kingfisher and have been able to prevent the rightful owners from removing their aircraft out of India.
---- Tony Griffin, managing director, Phoenix Aircraft Leasing Pte Ltd
A few carriers such as GoAir and IndiGo have placed huge orders — 72 and 180 A320 Airbus aircraft each — but planes do not arrive by bucket loads. The acute shortage is evident in the inability of airlines to fill the arrival and departure slots vacated by Kingfisher. Before its licence was suspended on October 20, 2012, Kingfisher held 400 slots. The airline applied and received 120 slots for the winter schedule from October 30, 2012, to March 30, 2013, post suspension. Even those slots are not being used by rival carriers, according to officials of airlines, airports and aviation ministry.
The Kingfisher crisis has also hit investors looking to launch airlines. Shyson Thomas, promoter of Air Pegasus, was looking to start a regional airline in the south last October. He is still hunting for aircraft. "Globally, airlines want to only operate aircraft; seldom do they buy." Thomas says he has been talking to aircraft lessors in Spain, France, Germany, Denmark, the UK and Singapore for months, but to no avail. "They do not want to lease it to Indian companies."
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Recovery Barriers
It is not hard to see why. Indian authorities are resisting the efforts of lessors and financiers to repossess the aircraft they had leased to Kingfisher, according to two companies that Thomas has been negotiating with. Tony Griffin, managing director of Singapore-based Phoenix Aircraft Leasing Pte Ltd, says his company was willing to lease two ATR 72-500 aircraft to Pegasus because the airline is headed by "experienced airline executives".
But due to the severe problems being experienced by lessors trying to get their aircraft back, Phoenix would not take the risk of leasing commercial aircraft to India, he says. Recently, ET reported that DVB Bank, the world's largest aircraft financier, has filed a case against the country's aviation regulator, Directorate General of Civil Aviation (DGCA) for delayed deregistration (freeing from a register) of two Kingfisher aircraft. The German company had complained about Indian officials and vowed to suspend all funding to Indian carriers.
In Pegasus'
case, most lessors are asking the company to buy aircraft. Setting aside Rs 200
crore for purchase of aircraft in a capital-intensive sector like aviation is not viable, says Thomas. "Others are
asking us to pay advance rentals of up to 24 months compared with the earlier
4-6 months. I might as well buy a second-hand aircraft with that kind of money."
Selim Cherif, manager, aviation transactions, MDT, a UK-based aviation financier, says when there are so many aircraft stuck in a country, one would be crazy to lease without significant guarantees. "From a lessor point of view, it is clear that the 'Kingfisher situation' has diminished the interest to lease into India."
According to
Griffin, the Indian airport authorities have charged aircraft owners for debts
owed to them by Kingfisher and have been able to prevent the rightful owners
from removing aircraft out of India. "We believe that several owners have
been forced to make a settlement with the airport authorities in order to get
their aircraft back."
The country head of a foreign airline says lessors have paid Rs 1 crore per aircraft to the Airports Authority of India (AAI) to repossess planes. "Kingfisher should be paying AAI. India badly needs more aircraft but this crisis has put paid to those efforts." VP Agrawal, chairman of the state-run AAI to which Kingfisher owes more than Rs 200 crore, did not respond to mails and calls.
When you have so many aircraft stuck in a country with most of them from major lessors, one would be crazy to lease there without significant guarantees.
---- Selim Cherif, manager, aviation transactions, MDT, a UK-based aviation financier
In barricading lessors, India could well be violating the Cape Town Treaty it signed in 2008. The international treaty is intended to standardise transactions involving movable property, including aircraft equipment. It creates international standards for registration of ownership and offers legal remedies for default in financing agreements, including repossession.
For aircraft financiers, the treaty brings, at least on paper, speed, certainty and cost savings to the process of repossessing aircraft and engines owing to insolvency or default on payments. Airlines benefit because any advantage to financiers leads to reduced costs. Defaults by airlines too is common worldwide, but authorities preventing repossession is rare, according to lessors.
'A Long Rope'
The question is why has AAI given such a long rope to Kingfisher, says Thomas. "First, its officials allowed Kingfisher dues to pile up and now when those dues cannot be recovered, they are not allowing the owners of planes to confiscate the planes."
Denying lessors is a huge financial setback, he says. "They are losing money as the planes lie idle. The aircraft will be in no condition to operate because they are lying in the open."
But DGCA boss Arun Mishra says his office is following the Cape Town Treaty to the book. "When we get a request from a lessor to deregister, we seek Kingfisher's response. In DVB's case, the airline said DVB has only financed the aircraft along with other Indian lenders and doesn't own the aircraft. The airline argued that it cannot agree to let go of the airline without permission from other financiers."
The same procedure was followed for US-based ILFC about two weeks ago, says Mishra. "We sought Kingfisher's response. It did not reply and we allowed four aircraft to be deregistered."
There are conflicting reports on how many aircraft are still in Kingfisher's possession. Authorities and Planespotters.com, a database of aircraft, put the number at 27. Media reports have speculated the number to be between nine and 16. An airline executive says he has seen six turboprops and two Airbus planes of Kingfisher parked at the Bangalore airport.
Slots are decided twice a year although airports periodically make adjustments based on the requests of airlines. The slots for the winter schedule run from October 28 to March 30. Before the crisis, Kingfisher had roughly 60 slots each at the two major airports, Mumbai and Delhi, according to a senior executive of GMR Group, which operates the Delhi airport. "KFA slots have been put on hold and not given to others due to a directive from DGCA," he says, requesting anonymity.
For the summer schedule, operators would gun for prime slots. But that shouldn't worry Kingfisher as the revival plan presented to DGCA envisions a relaunch with seven aircraft.
Selim Cherif, manager, aviation transactions, MDT, a UK-based aviation financier, says when there are so many aircraft stuck in a country, one would be crazy to lease without significant guarantees. "From a lessor point of view, it is clear that the 'Kingfisher situation' has diminished the interest to lease into India."
The country head of a foreign airline says lessors have paid Rs 1 crore per aircraft to the Airports Authority of India (AAI) to repossess planes. "Kingfisher should be paying AAI. India badly needs more aircraft but this crisis has put paid to those efforts." VP Agrawal, chairman of the state-run AAI to which Kingfisher owes more than Rs 200 crore, did not respond to mails and calls.
When you have so many aircraft stuck in a country with most of them from major lessors, one would be crazy to lease there without significant guarantees.
---- Selim Cherif, manager, aviation transactions, MDT, a UK-based aviation financier
In barricading lessors, India could well be violating the Cape Town Treaty it signed in 2008. The international treaty is intended to standardise transactions involving movable property, including aircraft equipment. It creates international standards for registration of ownership and offers legal remedies for default in financing agreements, including repossession.
For aircraft financiers, the treaty brings, at least on paper, speed, certainty and cost savings to the process of repossessing aircraft and engines owing to insolvency or default on payments. Airlines benefit because any advantage to financiers leads to reduced costs. Defaults by airlines too is common worldwide, but authorities preventing repossession is rare, according to lessors.
'A Long Rope'
The question is why has AAI given such a long rope to Kingfisher, says Thomas. "First, its officials allowed Kingfisher dues to pile up and now when those dues cannot be recovered, they are not allowing the owners of planes to confiscate the planes."
Denying lessors is a huge financial setback, he says. "They are losing money as the planes lie idle. The aircraft will be in no condition to operate because they are lying in the open."
But DGCA boss Arun Mishra says his office is following the Cape Town Treaty to the book. "When we get a request from a lessor to deregister, we seek Kingfisher's response. In DVB's case, the airline said DVB has only financed the aircraft along with other Indian lenders and doesn't own the aircraft. The airline argued that it cannot agree to let go of the airline without permission from other financiers."
The same procedure was followed for US-based ILFC about two weeks ago, says Mishra. "We sought Kingfisher's response. It did not reply and we allowed four aircraft to be deregistered."
There are conflicting reports on how many aircraft are still in Kingfisher's possession. Authorities and Planespotters.com, a database of aircraft, put the number at 27. Media reports have speculated the number to be between nine and 16. An airline executive says he has seen six turboprops and two Airbus planes of Kingfisher parked at the Bangalore airport.
Slots are decided twice a year although airports periodically make adjustments based on the requests of airlines. The slots for the winter schedule run from October 28 to March 30. Before the crisis, Kingfisher had roughly 60 slots each at the two major airports, Mumbai and Delhi, according to a senior executive of GMR Group, which operates the Delhi airport. "KFA slots have been put on hold and not given to others due to a directive from DGCA," he says, requesting anonymity.
For the summer schedule, operators would gun for prime slots. But that shouldn't worry Kingfisher as the revival plan presented to DGCA envisions a relaunch with seven aircraft.
Indeed, nothing seems to worry Kingfisher officials. "Despite the expiry of the licence [on December 31, 2012], there is no cause for concern as the regulations permit licence renewal within two years of expiry," says Kingfisher spokesman Prakash Mirpuri. "Kingfisher is confident of securing approval from the DGCA on the restart plan and licence approval."
We were
planning to start operations in October. But we have been unable to secure
aircraft, thanks to the Kingfisher crisis.
---- Shyson Thomas, promoter, Air Pegasus
Authorities and lenders do not share Mirpuri's cheer. Kingfisher presented a restart plan to the DGCA in December, but still lost its permit after it failed to provide details on funding of operations. "We have laid down a condition that it has to fully pay salaries because it is an operational issue. We want a safe, reliable service because they reneged on promises earlier and that affected the market," says Mishra.
---- Shyson Thomas, promoter, Air Pegasus
Authorities and lenders do not share Mirpuri's cheer. Kingfisher presented a restart plan to the DGCA in December, but still lost its permit after it failed to provide details on funding of operations. "We have laid down a condition that it has to fully pay salaries because it is an operational issue. We want a safe, reliable service because they reneged on promises earlier and that affected the market," says Mishra.
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Kingfisher would also have to seek the permission of lenders such as banks and oil companies, he says. Mirpuri says these are "certain no objection letters which are in the process of being procured and a few additional questions which will be answered to the regulator's satisfaction".
Rough & Tough
If anything, flying again will be far from easy for Kingfisher. The carrier owes around Rs 13,500 crore to banks, according to aviation consultant Capa. These lenders, including the country's largest, State Bank of IndiaBSE 0.23 %, which met in Bangalore on Friday will begin recovery proceedings if Kingfisher's parent UB Groupdoesn't infuse funds to resume flights.
Earlier this week, rival Jet AirwaysBSE 0.02 % said it is in talks with Etihad Airways for a possible investment. Etihad was also in talks with Kingfisher, but an overwhelming majority of analysts say it could side with Jet, shutting out Kingfisher's best shot at survival. As for Thomas, he is trying to secure more capital and acquire two aircraft. After that he hopes to lease the rest: "Kingfisher has hurt the whole sector."
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