Kingfisher creditors set to begin recovery proceedings

Kingfisher Airlines has pledged assets ranging from its brand to office furniture, for `7,500 crore against bank loans. Photo: Hindustan Times
Live Mint :P.R. Sanjai & Anup Roy: Fri, Jan 04 2013. 11 39 PM IST

Bankers to meet on 18 January to decide on action in absence of concrete move by UB Group to infuse funds

Mumbai: Creditors of grounded Kingfisher Airlines Ltd are set to begin recovery proceedings if parent UB Group doesn’t infuse the funds that are needed for a limited resumption of flights, bankers said on Friday.

A group of six lenders to the airline met on Friday in Bangalore to examine the viability of the revival plan presented by the airline. The meeting didn’t make any headway as the promoter didn’t give any firm commitment on fund infusion in the face of bankers insisting on this.

The consortium of 17 bankers to the airline will meet in Mumbai on 18 January to decide the course of action. “We need to take the final call before the financial year closes (in March). If the promoters do not bring in money, what can lenders do?” asked a banker who declined to be named.

The Kingfisher Airlines spokesman did not offer any comment for this story.

Kingfisher Airlines planes stopped flying on 1 October following a strike by engineers and pilots who hadn’t been paid since March. Subsequently, regulator Directorate General of Civil Aviation (DGCA) suspended the licence of the airline.

The airline submitted a restart plan to DGCA late last month. This involves a likely March resumption with seven planes, moving up to 21 in four months, with a fund infusion of Rs.652 crore from the UB Group. The airline’s licence to fly expired on 31 December. However, this can be renewed until December 2014.

“We have waited for long. We will have to start recovery procedures in case the promoters are not showing the willingness to provide money. Neither bankers nor DGCA are convinced by the fresh revival plan submitted by the airline. We need assurance for money,” said another senior banker, requesting anonymity.

He didn’t attend Friday’s meeting and isn’t part of the core banking group, but will attend the 18 January meeting.

Lenders had formed a core group to monitor the Kingfisher Airlines’ restart process. It has representatives from State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, IDBI Bank Ltd and United Bank of India.

If the bankers go ahead with their plan in the absence of any concrete move by the promoter to bring in funds, it will end the prospect of any foreign airline or private investor picking up a stake in the debt-ridden airline. Kingfisher also risks losing its assets, including planes, once the bankers start the recovery process. Most banks have already classified their exposure to the troubled airline as a non-performing asset and set aside money for it.

Kingfisher Airlines has pledged assets ranging from its brand to office furniture, for Rs.7,500 crore against bank loans. The assets, including a villa in Goa, two helicopters, Kingfisher House in Mumbai and shares, have been shown as collateral for loans as of November 2011, minister of state for finance Namo Narain Meena told Parliament in December 2011.

Kingfisher Airlines dropped 2.37% to Rs.14.43 on BSE on Friday. The benchmark Sensex rose 0.1% to 19,784.08 points.

On Friday, Mint had reported that state-run Airports Authority of India had warned Kingfisher Airlines that it will start taking away space allotted to the troubled airline at airports across the country if it fails to submit a “functional” plan by mid-January.

On Thursday, Jet Airways (India) Ltd announced it was in talks with Etihad Airways for a possible investment. Two officials of the civil aviation ministry, requesting anonymity, said Jet Airways was likely to sign a deal with Etihad in a week. Such a deal would end the chances of Etihad picking up a stake in Kingfisher Airlines. The airline had been seeking overseas investment to bail it out of the current crisis.

Bankers should take charge of Kingfisher Airlines by bringing in a new management, said a senior airline consultant, requesting anonymity.

“Bankers have to bring three eminent airline executives who can run the show till they get a new buyer. There is no other way until and unless (chairman Vijay) Mallya is pumping in more money,” he said.

Experts are drawing a parallel with the state-directed rescue of Satyam Computer Services Ltd. After Satyam’s founder B. Ramalinga Raju admitted to a multi-crore accounting fraud at the software firm, the government nominated a board to keep the company going through a sale to Tech Mahindra Ltd.

Kingfisher Airlines hasn’t shown a profit since its inception in 2005. It has $2.5 billion (around Rs.13,700 crore) of liabilities, of which $1.1 billion is bank debt, according to consultancy firm Capa. 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 23 October 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.