Kingfisher Airlines Thursday reached a settlement with employees by offering to clear three-months of overdue salary by mid-November. The airline, controlled by Vijay Mallya, hadn’t paid most of them since March.
This ends a 25-day strike by the airlines pilots, engineers and technicians that forced the airline to cancel flights indefinitely. But the ailing carrier’s troubles are far from over.
On Oct. 20, India’s aviation regulator suspended the Kingfisher’s license as the airline failed to produce a plan on how it will revive its operations.
On Monday, Chief Executive Sanjay Aggarwal said it will take Kingfisher at least two weeks to submit a fresh operations plan.
This means it will already have lost potential revenue for more than a month if it resumes operations as quickly as is feasible. The bigger problem for Kingfisher, however, is that taking to the air may not be the answer to its financial problems. Because of the high cost of jet fuel and low seat occupancy on Kingfisher flights, the company may lose less when its planes are on the ground.
“Kingfisher loses 80 million rupees ($1.49 million) every day that it flies, and 40 million rupees every day that it doesn’t fly,” India’s aviation regulator Arun Mishra told India Real Time, citing figures given to him by Mr. Aggarwal, Kingfisher’s CEO. Neither Kingfisher’s spokesman Prakash Mirpuri nor Mr. Aggarwal could be immediately reached for comment.
It’s worth noting that the airline also has assured payment of only a part of the overdue compensation owed to employees and said the rest will be cleared once it raises cash.
Where that cash will come from is unclear. Mr Mallya has said he is in talks with foreign investors, including overseas carriers, to sell shares in Kingfisher. Analysts said he would find it difficult to attract outside investment after the recent crisis.
“Revival of Kingfisher Airlines was earlier, and now as well, totally dependent on its promoters raising a minimum of $600 million, which is highly unlikely,” said Kapil Kaul, south Asia head for Sydney-based CAPA-Centre for Aviation. He said the airline’s turnaround would cost $1 billion.
Kingfisher, named after India’s most popular beer brand, has been unprofitable since its inception in 2005. The airline has piled up losses of about $1.9 billion between May 2005 and June 30, according to CAPA.
Kingfisher also still has its huge debt load to carry. The airline owes about $2.5 billion to lenders, leasing companies, suppliers and majority shareholders. Lenders have refused to give it any more money, and are now trying hard to recover their debt.
On Thursday evening, Mr. Mallya said on social networking site Twitter: “All Kingfisher Team members back at work and fully supportive. I sincerely thank all of them for their faith and continuing commitment.” He may require even more of them yet.
Kingfisher staff return, licence still suspended
Employees of the grounded Kingfisher Airlines Ltd, unpaid since March, agreed on Thursday to return to work although the debt-strapped carrier must still convince the aviation regulator to reinstate its licence.
The deal appears to avert potentially embarrassing protests by disgruntled staff at this weekend's Formula One auto race outside New Delhi, where Kingfisher Chairman Vijay Mallya's Force India team will compete.
Kingfisher, once India's second-largest airline, has not flown since the start of October after an employee protest turned violent. On Saturday, the Directorate General of Civil Aviation (DGCA) suspended its licence after Kingfisher failed to address its concerns over safety.
"All employees have agreed to resume duty right now. They are on duty as we speak ... We are all in this together and looking forward to getting the airline going in the next few weeks," CEO Sanjay Aggarwal told reporters at the Delhi airport after meeting staff members.
He did not give further details and it was not immediately clear how the airline would fund salary payments.
"We will now finalise and present our resumption plan to the DGCA and hope to get their concurrence soon," the airline said in a statement.
Kingfisher has never made a profit since its launch in 2005 and has debt of nearly $2.5 billion, according to an estimate by the Centre for Asia Pacific Aviation. The consultancy has said it would cost at last $1 billion to turn around Kingfisher, which has failed in efforts thus far to bring in new capital.
S.C. Mishra, who represents Kingfisher engineers based in Delhi, said the airline had agreed to pay March salaries immediately, April salaries by October 31, May salaries by the Diwali holiday on November 13, and June salaries between December 20 and December 31, after which payment would be made monthly.
The remaining three- to four-month lag in salary payments would be addressed "after the company regains financial health and gets recapitalised," Mishra told reporters.
He said employees will not hold demonstrations.
Shares in Kingfisher closed up 4.83 percent, effectively at their 5 percent daily limit, after falling by a similar amount in each of the four previous sessions.
Kingfisher has been scrambling to find investors to bring in fresh capital, and had lobbied for a recent law change that allows foreign carriers to buy up to 49 percent of an airline. However, no carrier has publicly expressed interest in taking a stake.
Mallya's liquor business, United Spirits Ltd, is in talks to sell a stake to UK drinks giant Diageo Ltd, which could potential free up funds for him to invest in Kingfisher.
"All Kingfisher team members back at work and fully supportive. I sincerely thank all of them for their faith and continuing commitment," Mallya, known as the "King of Good Times" for his flashy lifestyle, said on Twitter.
GROUNDED
The civil aviation ministry said meeting payroll commitments was not Kingfisher's only challenge.
"The salary is a big issue and the employees should be paid. But the larger issue than that is their fiscal assurance to the DGCA," Ajit Singh, India's civil aviation minister, told the ET Now TV channel earlier on Thursday.
"They have a lot of outstanding (debts) to the airports authority, to oil companies, to the leasing companies. So it's not just a question of salary ... To allow them to fly again, DGCA is to be satisfied on many more things," Singh said.
DGCA officials were not immediately available for comment.
Even before it stopped operations, Kingfisher had grounded most of its fleet and defaulted on payments to banks, airports, leasing companies and others but was still permitted to continue flying.
That prompted criticism from many that authorities were going easy on Mallya, who is a member of parliament and one of India's highest-profile businessmen.
Most of Kingfisher's lenders are state banks, which rarely force corporate liquidations.
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UPDATE 2-India Kingfisher staff return, licence still suspended
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By Salil Panchal (AFP) – 5 minutes ago. MUMBAI — Staff at India's Kingfisher airline, whose fleet has been grounded since October 1, have agreed to end their strike over unpaid wages and return to work, the company's chief executive said on Thursday.
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