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Kingfisher Airlines loses licence to fly

Source : BUSINESS_STANDARD
Last Updated: Sat, Oct 20, 2012 18:41 hrs
Kingfisher Airlines' passenger jets are seen parked at an airport in New Delhi

Bad times have befallen the King of Good Times. After weeks of uncertainty over Kingfisher Airlines ' future, the Directorate General of Civil Aviation (DGCA) on Saturday decided to suspend its licence. The move came after the airline failed to come out with a viable operational and financial revival plan, for which it had been given an October 20 deadline.

The suspension does not have a defined term and can be revoked once the DGCA is satisfied the airline has a financial and operational plan to ensure the safety of flights.

The suspension comes after KFA (Kingfisher Airlines) failed to reply to a showcause notice issued by the DGCA, asking why its license should not be cancelled. KFA sought more time to respond, which was denied.

WHAT LED TO THE FALL
  • Over-aggressive expansion: The airline grew fast, adding 65 planes in six years, connecting metros and tier-II towns with a promise of five-star service; it even ordered an A380 aircraft
  • High operating costs: The airline was unable to control costs. Capt G R Gopinath, who sold Air Deccan to Kingfisher, says the airline was unable to retain Deccan's loyal customers. It began grounding planes for want of spares or lack of funds
  • High debt: Its debt of Rs 7,000 cr resulted in the airline spending 15-18% of its revenue on servicing debt. In the first quarter of 2011, it had Rs 1,800 cr in revenue and spent Rs 305 cr on interest
  • Revenue fall: By the first quarter of 2012, after having cut its schedule and stopped international flights, the airline's revenue fell to Rs 301 cr. The interest cost was Rs 383 cr

KFA FINANCES
Total debt Rs 13,446 crore, including bank debt (approximately Rs 5,940 crore), promoter debt, trade debt and other short-term liabilities
Accumulated losses Rs 10,260 crore as on June 30, 2012
Promoter contribution Approaching Rs 5,400 crore as on August 31, 2012 as well as UB Group securities, of which Rs 1,188 crore has been infused in the past 3-4 months
Source: CAPA (Centre for Asia Pacific Aviation)

According to a statement by the civil aviation ministry, "The permit has been suspended with effect from October 20, 2012, pursuant to Clause 15 (2) of Schedule XI of the Aircraft Rules, 1937. It has been suspended till such time KFA submits a concrete revival plan ensuring safe, reliable, efficient and sustainable scheduled air transport services to the satisfaction of the DGCA."

Responding to the decision, Ajit Singh, civil aviation minister, said, "We cannot compromise passenger safety. DGCA has given enough time to KFA. It will have to come up with a satisfactory operational preparedness plan. It will have to ensure that KFA employees are not disgruntled."

THE JOURNEY TO THE CRASH
  • Apr 2011: KFA has 20% market share, operates 65 aircraft and 300 flights
  • Jun 2011: GMR Group, which runs Delhi and Hyderabad airports, threatens to put KFA on cash-and-carry mode but defers plan. In December, Mumbai airport puts it on cash and carry, as pending dues run to Rs 90 cr
  • Jul 2011: HPCL puts Kingfisher on cash-and-carry mode, suspends jet fuel supply.
  • Sep 2011: KFA exits low-cost segment with Kingfisher Red
  • Nov 2011: Operational inefficiencies start cropping up. Airline plans to drop unprofitable routes due to high operating costs and lower yields. Salaries not paid, over 50 flights cancelled, DGCA carries out financial audit
  • Jan 2012: SBI declares loans to KFA non-performing
  • Feb 2012: Other banks declare KFA loans non-performing; of 64 aircraft, only 22 operational by Feb 20
  • Mar 2012: Tax department starts freezing KFA bank accounts
  • Oct 2012: All flights cancelled; engineers strike; lockout declared, extended thrice
  • October 20, 2012: KFA does not reply to DGCA notice, licence suspended

A spokesperson for the airline said the suspension was temporary. "The actual position has not changed because of this order. We have in any case always maintained that once the issues with the employees are resolved, we will present our resumption plan to the DGCA for review before resuming operations. Notwithstanding the DGCA order, we had in any case suspended operations and closed forward bookings till November 6," he said.

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