Vendors and suppliers count their losses

One big impact of Kingfisher Airlines having its licence suspended could be on the confidence of the global community in dealing with Indian aviation, with vendors and suppliers calculating their losses.

According to a source from the aircraft maintenance industry, at least a dozen vendors have their assets (leased to Kingfisher) stuck in India, that can be moved out only after spending huge sums of money.

“How will the lessors take their aircraft back? The confidence will take a hit and it will depend on how the DGCA (Directorate General of Civil Aviation) handles the situation,” said a high ranking person from a firm that leases out small aircraft.

The movable assets are covered by the Cape Town Treaty, signed by the Indian government. The treaty creates international standards for registration of ownership (including dedicated registration agencies), security interests, leases and conditional sales contracts, and various legal remedies for default in financing agreements, including repossession, and the effect of particular states’ bankruptcy laws.

Between May 2005 and June 30, 2012, Kingfisher accumulated losses of $1.9 billion, according to a report by the Sydney-based CAPA-Centre for Aviation.

Lenders say recovery last option 
PTI adds: Lenders to the airline, whose combined exposure of nearly Rs 7,500 crore is at risk, have said they will go in for recovery measures only as the last resort and expressed hope that its promoters would be able to find an investor and resume operations.

“At best, we will be able to recover just 10-15 per cent of our overall exposure if we were to monetise the pledged properties. So, initiation of recovery measures will be our last recourse,” a senior official of a Mumbai-based public sector lender said. This bank has around Rs 500 crore stressed exposure.

The airline’s collapse has gone along with other airlines reducing excess capacity and this has led to fares rising at least 20 per cent over recent months. For the winter schedule commencing October 28, Indian carriers will fly 20 per cent less flights than last year. This year, there’s been an average of 10,935 versus 13,541 flights a week last year. Experts expect fares to rise another 10-15 per cent during winter, as the season sees the highest demand.

Kingfisher's plight also sounds alarm bells for other carriers, most of which have been bleeding since last year because of high costs, borrowing rates and a weakening rupee.