FP :Sindhu Bhattacharya Sep 3, 2013
New Delhi: The never say die spirit of Vijay Mallya is admirable. The chairman of Kingfisher Airlines has no flying permit, crores in debt from lenders with myriad legal cases, unpaid employee dues and no visible plan in sight to bring in fresh capital to restart the airline. But he still dreams of restarting the airline. In the annual report for 2012-13, which he has sent to shareholders ahead of the proposed AGM of Kingfisher on 24 September, Mallya has said
Kingfisher remains 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 of this report, your company is engaged in discussions with one such potential investor.”
Any guesses which investor is now willing to take on a dead airline, faulty planes, absent workforce and insurmountable debt?
Under the heading ‘Management Discussion and Analysis’ Mallya has referred to several global full service airlines keenly watching the Indian market and financial investors in the Indian aviation industry looking for an exit.
It is interesting to note that late last year, when news was trickling in about Abu Dhabi based Etihad Airways being in talks with India’s Jet Airways for an equity partnership, Kingfisher had let it be known that Etihad was conducting its due diligence. Vijay Mallya in this file photo. Reuters Though this was never officially confirmed, Kingfisher managed to raise everyone’s hopes on a possible equity infusion by Etihad, which eventually did not happen. So Mallya’s assertion in the annual report again about ongoing discussions with one potential investor are certainly curious.
Mallya has devoted quite some time in detailing out why a potential investor should come forward. Among the reasons he has put forth include Kingfisher having enough qualified staff, at least 12 aircraft premium slots and a lapsed flying permit which can be renewed.
Here’s what all he has said:
1) Will give any investor a foothold in one of the fastest growing aviation markets in the world, that is India.
2) Growing importance of aviation in policy making, such as opening up of Indian aviation industry to foreign airline investments.
3) New airports and other aviation infrastructure coming up.
4) Kingfisher’s promoters are willing to continue support for the airline’s revival.
5) Valuation of Kingfisher is “very attractive” at the moment.
6) Brand Kingfisher, where a recent brand valuation conducted by Grant Thornton put the brand value at $550 million once the airline business becomes operational.
7) Scheduled Air Operator’s Permit (SOP) which can be renewed anytime within two years by capitalising the airline in line with the revival plan submitted to DGCA.
8) Kingfisher has 12 aircraft and is “confident of” acquiring additional aircraft during the ramp up.
9) Senior and mid level managers and sufficient number of pilots, engineers, dispatchers still on Kingfisher’s rolls to operate up to 20 aircraft. Additional staff can be hired as the airline business ramps up.
10) Ground handling equipment and aircraft spares to support the fleet.
11) Access to most of the premium slots besides curbside and ramp space at various airports.
Mallya has also referred to the fact that Kingfisher has already submitted a two phase revival plan to regulator DGCA. Phase one involved restarting the airline operations with a limited fleet of 7 aircraft (5 Airbus + 2 ATRs), gradually increasing to 21 aircraft (10 Airbus + 11 ATRs) in a period of 3-4 months. Kingfisher’s parent UB Group offered to organise funding of approximately Rs 650 crore to implement this phase. The second phase envisaged bringing a new investor with fresh capital. This plan would address the issues of debt restructuring, servicing, and repayment.
The UB Group agreed to organise financing for a limited restart. Mallya says in the annual report that “While the authorities remain supportive of your company’s restart, these authorities are awaiting recapitalisation of your company for granting the necessary permissions for renewal of the SOP and restart of operations.”
So in effect, unless Mallya succeeds in getting funds, none of his plans can materialise. Meanwhile, Mallya also said in the annual report that Kingfisher has filed a $234 million lawsuit for damages from International Aero Engines AG citing engine defects. The lawsuit citing deficiency in IAE’s V2500 A5 engine was filed in a court in Bangalore.
Engine problems and difficult operating environment were cited by the carrier as reasons for Kingfisher’s financial stress. The airline grounded its fleet in October after employees walked out over delayed salaries.
Thereafter, DGCA suspended the airline’s permit because of service disruptions and the permit lapsed on 31 December last year. Kingfisher’s lessors have repossessed aircraft after payment defaults and the Airports Authority of India sued the airline because it failed to pay Rs 300 crore of airport fees
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