Strike Grounds Kingfisher

Kingfisher has cancelled all its flights because of an unofficial strike declared by engineers and pilots. The airline has put out a press release on the topic as well.

Kingfisher employees are protesting the non-payment of salaries for months now. However, the protests reached a new level when striking ground handlers beat up an executive and held passengers hostage aboard their aircraft for hours.

The DGCA (regulator) is reviewing the situation. With all aircraft grounded, Kingfisher does not qualify for an AOC any longer – a minimum of 5 operational aircraft are necessary to maintain the permit.

Since there are no engineers available to certify aircraft for operations due to the strike, Kingfisher has approached Air India. IndiGo, and Jet Airways for the same.

Kingfisher has also stopped selling tickets for Tuesday’s schedule through all channels.

It looks like this might finally be the real end of the road for Kingfisher. Then again, we thought it was the end of the road many times before as well

We will be monitoring the situation carefully, ready to give you updates as soon as possible.

 

Lessors Pay AAI to Repossess Aircraft

With Kingfisher’s financial status continuing to deteriorate even after reforms like FDI and fuel imports have been instituted, foreign lessors have become increasingly impatient about their repossessions of Kingfisher Aircraft. For the past 2 months, Airports Authority of India has refused to allow lessors to repossess aircraft from Kingfisher due to non-payment of dues. Kingfisher owes AAI over 300 crores (60 million US Dollars).
With increasingly desperate lessors losing revenue each day that the Kingfisher aircraft stay out of service, they have taken to paying AAI directly the amounts which Kingfisher owes. Lessors are paying 1 crore ($200,000) to AAI on behalf of Kingfisher in order to take their aircraft back.
It’s really quite unbelievable that Kingfisher has managed to limp along this long, even with such horrible financial results. The airline is a long way from when they started just a few years ago, a promising full service carrier which took India by storm.

Foreign Direct Investment in Aviation Proposal Approved by CCEA

India’s Cabinet Committee for Economic Affairs (CCEA) has approved a proposal to permit foreign airlines to invest in Indian carriers. Foreign carriers would be permitted, by the new rules, to own upto 49% of an Indian carrier. The proposal still has to be passed by parliament, but CCEA approval is a major step forward. Under current regulation, foreign entities can own upto 49% of the Airlines of India, but foreign airlines are specifically excluded.
The press release from the Government of India says:

The Cabinet Committee on Economic Affairs has approved the proposal of the Department of Industrial Policy and Promotion for permitting foreign airlines to make foreign investment, up to 49 percent in scheduled and non-scheduled air transport services.

Removing the existing restriction on investment by foreign airlines would assist in bringing in strategic investors into the civil aviation sector. Higher foreign investment inflows are necessary at the present juncture, in order to strengthen the sector. Introduction of global best practices, concomitant with the induction of FDI from foreign airlines, is expected to lead to higher service standards, international best practices and induction of state-of-the-art technologies, in the air transport sector.

Until now, foreign airlines were allowed to participate in the equity of companies operating cargo airlines, helicopter and seaplane services, but not in the equity of an air transport undertaking operating scheduled and non-scheduled air transport services. The Government has now permitted foreign airlines to invest, under the Government approval route, in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 percent of their paid up capital. The 49 percent limit will subsume FDI and FII investment. The investments so made, would need to comply with the relevant regulations of SEBI, such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations / Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations. Such investment would further be subject to the conditions that:

  1. A Scheduled Operator’s Permit can be granted only to a company:
    1. That is registered and has its principal place of business
      within India,
    2. The Chairman and at least two-thirds of the Directors of which
      are citizens of India, and
    3. The substantial ownership and effective control of which is
      vested in Indian nationals.
  2. All foreign nationals likely to be associated with Indian
    Scheduled and Non-Scheduled air transport services, as a result of such
    investment, shall be cleared from security view point before
    deployment, and
  3. All technical equipment that might be imported into India, as a
    result of such investment, shall require clearance from the relevant
    authority in the Ministry of Civil Aviation.

The issue of permitting FDI by foreign airlines in the equity of an air transport undertaking operating Scheduled and Non-Scheduled air transport services has been under consideration of Government for some time. There has been a need to consider financing options available for private airlines in the country, for their operations and service upgradation, and to enable them to compete with other global carriers. Denial of access to foreign capital could result in the collapse of many of our domestic airlines, creating a systemic risk for financial institutions, and a vital gap in the country’s infrastructure.

The total FDI inflows into the air transport sector, during January, 2000 – April, 2012, were US $ 434.75 million, constituting only 0.25 percent of the total FDI inflows into the country.

Kingfisher Airlines has been waiting for months on this decision. They believe that a foreign carrier will be willing to invest. A Kingfisher spokesperson said:

“We are very pleased that the Government has decided to allow foreign Airlines to invest upto 49% in the equity of Indian scheduled Airlines. This will open up a wide range of opportunities for both Indian carriers and foreign carriers who wish to participate in the strong growth potential for Civil Aviation in our Country. Kingfisher will now be able to re-engage with prospective Airline investors in a more meaningful manner and move towards re-capitalization and ramp up of operations.”

This statement is very idealistic in my view – with the amount of debt which Kingfisher has accumulated, the tarnished brand image, and the poor and disorganized state of affairs, it would seem that starting a new carrier would be a better move than trying to turn this failing carrier around.

As Devesh Agarwal at Bangalore Aviation pointed out,

It is important to observe the FDI will not be through the automatic route. Each investment proposal with have to be ‘cleared’ by the Ministry of Civil Aviation and the Foreign Investment Promotion Board (FIPB). So one can expect at three to four months for any proposal to come through. Any guesses why this route has been chosen?

This decision will mean that the process for foreign investment will stretch on even longer. It appears unlikely that Kingfisher will be able to continue holding out, so it looks like this decision is targeting the carrier. No doubt the lobbyists of competing carriers want one less competitor to worry about.

DGCA Continues To Protect Kingfisher With Latest Moves

The DGCA, India’s aviation safety regulator, has continued to turn a blind eye to Kingfisher Airlines with its recent moves. Despite being able to cancel/suspend the license of Kingfisher, the mantra of the agency under Aviation Minister Ajit Singh has been that the airline cannot be shut down until they get down to 5 aircraft or less in the fleet or have a serious safety lapse.

With Kingfisher down to 10 operational aircraft, not having paid staff in over 6 months, and being continually crippled by ongoing staff agitations, it seems a miracle that the airline is still around. And with no money to pay engineers or buy spare parts, it’s even more incredible that the aircraft are still flying.

The DGCA is expected increase technical surveillance of carriers under financial pressure as per ICAO regulations. But instead of doing that, the DGCA has cancelled the daily technical surveillance ordered by former DGCA EK Bharat Bhushan, citing “cost issues.” The safety audit performed over the last few weeks by the DGCA will be used to “suggest remedial course of action to the airline” instead of taking punitive measures over safety issues.

But the strangest move yet came when the DGCA has sought comments on changing the title of a Civil Aviation Requirement (CAR) to remove the phrase “Assessment of Impact of Financial Stress on Safety of Operations.” To be clear, the DGCA is suggesting that financial stress be removed from what the DGCA monitors.

These kinds of moves seem like they are clearly intentioned to protect Kingfisher, which owes thousands of crores to AAI, oil companies, banks, and more.

However, Vijay Mallya will have to learn for himself a simple truth in aviation – safety is expensive, but an accident is far worse.

Kingfisher Pilots Plan To Continue Weekend Strike

Kingfisher Airlines cancelled over 25 flights this weekend as pilots held a flash agitation over the non-payment of salaries. To put that number into perspective, Kingfisher only operates about 30 flights each day.

Pilots had been assured that one-month’s pay would be provided on Friday. However, the payment (unsurprisingly) never arrived. Flights from Mumbai were most affected by the agitation.

This strike comes shortly after Kingfisher revealed its atrocious Q1 financial performance. Its net margin was less than -300%! Obviously not a sustainable situation..

On the bright side, with pilots planning to continue this strike, we can look forward to another letter from Vijay Mallya 😛

Vijay Mallya Writes Letter to Striking Employees

With Kingfisher Airlines employees striking, Vijay Mallya has written a letter to employees begging them to return to work:

Dear Colleagues,
Today is an important day in our history. Unfortunately a sad one.
Several of you have been in dialogue with our CEO and also Hitesh Patel. The commitments made by them have been met to the extent of 75 percent as of yesterday.
We struggled immensely and I personally have devoted more time to our Airline than to any other UB Group Company in addition to investing over Rs. 4,000 crores into Kingfisher Airlines since we started.
We worked hard to gain the trust and confidence of our guests. Today, by forcibly cancelling several flights we have lost most of that.
The media will disgrace us and our flights going forward will be empty leading to further loss of income as our guests will not select Kingfisher if they are doubtful about the integrity of our schedule.
Damaging the future of Kingfisher in the public eyes is not going to produce cash. It only makes it more difficult to recover.
I really hope that good sense will prevail. I am doing my best. If some of you think that cancelling flights, speaking to media, or disgracing our Company will produce cash and salaries, you are wrong. This only makes my recapitalization efforts more difficult by causing concern and apprehension among our potential investors.
One of the main reasons that has motivated me into investing more money to keep Kingfisher flying is that I see light ahead. I invite you to share my confidence and work towards realising that light.
I sincerely hope that all of you will listen carefully to my appeal and work together to restore Kingfisher to its rightful place in the Aviation industry.

Regards,
Vijay Mallya,
Chairman

Seems like the end is finally near to Kingfisher. I guess the politicking wasn’t enough.

Kingfisher Lost ₹1,150 crores in Q4, ₹2,325 crores in FY2012

Kingfisher has posted their 4th Quarter and Fiscal Year 2011-2012 results. And they are not good.

Kingfisher lost ₹1,151.5 crores (~US$200 million) for the 4th quarter ending March 31st, and ₹2,328 crores (~US$415 million) for the entire fiscal year.

With Kingfisher only running skeletal operations, in some ways it’s surprising that their revenue only crashed by almost 50% last quarter. With that said, there is little purpose in analyzing Kingfisher’s financial performance closely. It’s clear that the airline has fallen apart, and that nobody in their right mind would be willing to invest in it, or even take it for free.

While Kingfisher has been the airline that just wouldn’t die for some time now, the airline will have to go down soon enough. These kinds of losses simply aren’t sustainable.

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.

Kingfisher Pilots Go On Strike, Air India Strike Continues

This week has been full of strikes for the Indian sector.

Air India’s pilot strike has entered its third day now, leading to mass cancellations and costing Air India hundreds of crores a day. As I explained in my post earlier this week, the Air India strike is pretty much because the pilots are unhappy that Air India is not giving in to their unreasonable demands. To the credit of Air India management, a hard stand has been taken. Over 40 pilots have been sacked, the union has been derecognized, and hopefully industrial peace will arrive soon. If not, the ICPA (pre-merger Indian Airlines pilots) have volunteered to fly the routes that the IPG (pre-merger Air India pilots) are refusing to fly. Hopefully, this strike will finish quickly, saving taxpayer money and allowing passengers to get to their destinations.

In terms of how Air India has handled the strike from a customer service perspective, it appears they have done a good job. For example, at Hyderabad, instead of delaying the flight 2 hours at a time, forcing pax to spend the night at the airport for the departure, the flights were cancelled off the bat. All pax were rebooked onto the next day’s service within 1 hour of scheduled departure. It appears that people were given the choice between being put up at the Marriott and getting a taxi voucher of some sort to go back home, which seems reasonable. This is a far cry from just a few years ago where high profile incidents of Air India delaying flights all night leaving passengers stranded at the airport were publicized widely. It is good that they seem to be getting their ground handling back in order.

Kingfisher Airlines pilots have also gone on a “sickout” strike. Over 100 pilots based out of Delhi have not reported to work, and Mumbai pilots reportedly are also calling in sick. The strike of Kingfisher pilots is because they have not been paid since January. Unlike the Air India strike, this is a good reason to be striking. Not paying employees for months is not acceptable.

This strike has a very real chance of bankrupting Kingfisher once and for all. In many ways, this will make no difference to the employees – they have already not been paid for months, and it’s unlikely that they will be paid in the near future. Kingfisher’s demise is pretty much guaranteed after FDI was put on hold. It’s just a matter of time, and the sooner the company goes bankrupt, the sooner Kingfisher staff can find a new job which actually pays a salary.

When I wished Kingfisher Airlines happy birthday yesterday, I expressed surprise that they are still flying today. In my mind, it’s nothing short of a miracle. The airline simply isn’t viable, with sky-high costs and yields being in the dumps (almost all tickets are being sold at less than 3/4 the rate of LCCs).

Happy Birthday Kingfisher Airlines!

May 9th, 2005 at 6:05 AM was a special moment for Vijay Mallya. His new airline’s maiden flight had just taken off. Flying from Mumbai to Delhi, the A320 was decked out with luxuries and frills like the Indian aviation market had never seen before. “Everything is going to change,” Vijay Mallya declared proudly. “Kingfisher will provide an unparalleled in-flight experience.”

He made other declarations too. “Having invested in the best-in-class fleet of aircraft, we are committed to achieving our ambition of making Kingfisher Airlines, India’s largest private airline both in capacity and market share by 2010,” and “We expect Kingfisher Airlines to be profitable in the very first year of operation given its strategic approach to control costs, deployment of technology and outsourcing,” were some of the ways in which he expressed how gung-ho he was about the new airline. Of his declarations, only the first came remotely close to being true.

Kingfisher was revolutionary in terms of Passenger Experience in the Indian aviation sector. It led the pack in terms of in-flight entertainment and in-flight comfort. Kingfisher also led the pack in terms of social media presence – bringing the Indian aviation sector into the 21st century. The airline succeeded in creating a powerful brand, with the bold red color, attractive staff, and “good times” being positively associated with Kingfisher Airlines.

The airline became incredibly popular fairly quickly. With reasonable fares and a differentiated product, Kingfisher was the first choice for many loyal passengers. Kingfisher was one of the top airlines worldwide in terms of Passenger Yield (PRASM), commanding premium ticket prices over its competitors. However, its costs were also very high due to the frilly product, and Kingfisher struggled to make a profit. Far from making a profit the very first year of operation as Vijay Mallya was hoping, the airline has never made any profit to date.

Last year, Kingfisher reached its peak in terms of passengers carried. While not the first in capacity or marketshare as Vijay Mallya was hoping, the airline had grown incredibly fast, both organically and through the purchase of Air Deccan. At the end of last year, however, Kingfisher was showing signs of stress. The purchase of Air Deccan had left them with a massive debt-load and their foray into the LCC segment had given them a muddled brand. After 6 years of never making a profit, they couldn’t afford to pay their operational bills.

We all know what happened a few months ago. Kingfisher slashed its fleet drastically, cut routes, and pulled out of major airports like Kolkota and Hyderabad. Industry analysts almost unanimously predicted that the downfall of Kingfisher was closeby.  To the shock of many, myself included, Kingfisher is still operating today.

And for that reason, a warm happy birthday is in order. Not every airline can drag out its survival so much.

Happy Birthday Kingfisher Airlines!