British Air To Help Modiluft Fly Again
ModiLuft, the ailing private domestic airline promoted by S K Modi, has entered into a tie-up with British Airways Plc under which the UK carrier will help it fly again from February 1, 1998.
Under the agreement signed last Friday, S K Modi will remain the chairman of ModiLuft while British Airways will control six "key posts" in operations, customer service, technical wing, finance and marketing. A decision on the managing director has yet to be taken.
Modi refused to comment on the issue. However, sources say ModiLuft has written to the finance ministry, directorate general of civil aviation and Reserve Bank of India general manager (exchange control department) presenting them with the details of the agreement. According to the letter, British Airways will assist ModiLuft in its relaunch by provision of management accounting and financial reporting systems. The agreement would be effective from January 1, 1998.
A decision to purchase or lease aircraft for relaunch of operations will be taken once the new management is in place.
The two airlines have also signed an inter-line arrangement which will cover flight reservations etc to ensure flow of traffic to the benefit of the both the carriers.
Meanwhile, sources say the $50 million bond issue floated by ModiLuft to raise funds in the overseas market has been "successful".
ModiLuft has also worked out a financial revival package which includes converting its loans raised in the inter-corporate deposits (ICD) market into equity in a phased manner.
Another option given to the ICD holders is to offset part of the loan against free tickets for the airline when it starts flying again.
The airline has given the mandate to UK merchant banking company Seamico Marlin Securities to prepare the financial revival package.
The airline is believed to have raised ICDs worth Rs 20 crore from various companies which includes Rs 5 crore from hotel chain Leela group's financial arm Leela Capital & Finance Ltd and about Rs 4-5 crore from Reliance Industries Ltd.
ModiLuft first ran into trouble in May 1996, when Lufthansa suddenly terminated its business relations with the airline on the ground that the Indian partner had repeatedly defaulted on payments and was unable to adhere to the commitments.
The differences between the two partners were recently resolved in London.
There was also a hostile bid made by the Khemkas of the NEPC group, who had just acquired Damania Airways and turned it into NEPC Airlines.
However, Modi managed to thwart the NEPC bid to acquire a controlling stake through an open offer.
Under the agreement signed last Friday, S K Modi will remain ModiLuft chairman while British Airways will control six key posts