Modiluft To Return Lufthansa Aircraft By September 30

The SK Modi-promoted ModiLuft is to return its erstwhile partner Lufthansas three Boeing 737 aircraft by September 30, failing which it would be forced to pay $5 mn (approximately Rs 18 crore) as default charges.

This is one of the 3 conditions worked out in the settlement plan and now decreed by the Supreme Court following a negotiated settlement appeal filed by the two airlines recently. The court has fixed August 15 as the benchmark date for all transactions involved in the terms of consent.

According to the order, ModiLuft would also have to ensure that the three aircraft are deregistered by the DGCA (directorate general of civil aviation) within 120 days, starting August 15. The aircraft are currently registered in ModiLufts name.

The second condition ensures that both the parties withdraw all litigation activities against one another. While Lufthansa had severed its relationship with Modi on grounds of non-payments to the tune of nearly $40 mn, Modi on his part had filed a counter-suit against Lufthansa worth Rs 687 crore.

The new condition has pegged the settlement dues at $5 mn plus a small amount of Rs 1.49 crore. The latter amount was incurred by Lufthansa on behalf of ModiLuft in April 1997 to pay maintenance charges and government fees in order to keep the grounded aircraft airworthy.

According to the repayment schedule, Modi would get a moratorium of one year after which he would have to pay Rs 1.49 crore within 18 months through six equal quarterly installments.

He also gets a 3-year moratorium on the remaining amount of $5 million which he would have to repay in 18 months through six equal quarterly installments.

This means, while he would have to organise the first amount in 30 months, the bulk of the due amount has to be settled within 48 months. Industry observers feel Modis plans to be airborne by September 1997 seem a little flighty as it would have to renegotiate with aircraft leasing companies for planes. This is expected to take atleast a few more months.

Meanwhile, Modi has signed a consultancy contract with the British Airways subsidiary Speedwings which would help him in identifying new aircraft and relaunching the airline. However, this contract, said industry experts, is a mere client-consultant relationship as of now and does not amount to future linkages with British Airways directly.

As for Lufthansa, the airline has no immediate plans for the domestic passenger segment on the lines of the ModiLuft partnership, though it does plan to look into some marketing and other such strategic relationships.