Breaking: Kingfisher Airlines Bank Accounts Frozen By Income Tax Authorities (Update 1)

Edited at 7:06 PM IST

Income Tax Authorities have systematically frozen Kingfisher Airlines’ bank accounts over the last couple weeks due to non-payment of pending tax dues. This is a big hit to the struggling carrier, and one that has the potential to knock the airline into bankruptcy.

This is the second time so far this year, after the airline’s bank accounts were frozen in late February/Early March. The accounts were unfrozen after the airline agreed to pay over ₹9 crore (~USD $1.8 million) per week. They have not managed to pay that amount recently, instead paying less than half that amount. The total tax bill that Kingfisher has not paid yet amounts to over ₹350 crore (~USD $70 million). The airline also owes over ₹35 crore (~USD $7 million) to the service tax department for unpaid taxes.

In addition to the taxes not paid, Kingfisher has not paid its employees in months. The pilots attempted to strike 2 weeks ago, but quickly stopped when they realized that any industrial action would likely kill the airline, and along with it the chance of ever receiving their overdue paychecks.

Overall, the carrier owes about ₹7,000 crore (~USD $1.3 billion) to various lenders, in addition to debt held by employees, suppliers, and tax authorities. A lot of this debt is to a State Bank of India-lead consortium, which is working on a debt restructuring plan that they hope will allow the carrier to return to profitability. As I’ve said many times, I think the airline is a lost cause, and any time and funds they waste on this is throwing good money after bad. Kingfisher maintains that they need an equity infusion to be competitive in the long term.

However, the banks are quite prudently refusing to grant more debt until the airline’s promoters invest more in the company. UB Group, the organization run by Kingfisher’s main promoter Vijay Mallya, is reducing it’s stake in the carrier, although it still has significant exposure. In fact, UB group has reduced its stake so much that Kingfisher Airlines is no longer one of its subsidiaries.

Kingfisher has been flying a truncated schedule for a long time. Using less than 20 aircraft, down from it’s former 60 aircraft + fleet, the airline finally pruned enough of its schedule to be able to serve it reasonably reliably. Stations at major cities like Hyderabad and Kolkata have been closed, and staff at many cities have been asked to stay home.

However, customer confidence in the airline continues to be poor. Kingfisher has lower yields than the low cost carriers, making their operations fundamentally unviable.

Updates will be posted as information arrives.