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India suspended Kingfisher Airlines Ltd. (KAIR)’s operating license after the cash-strapped carrier failed to resume flights because of a strike by engineers and pilots demanding seven months of unpaid salaries.
The suspension will remain in effect until the airline submits a “concrete and reliable” revival plan to the Director General of Civil Aviation, the industry regulator, the Civil Aviation Ministry said in an Oct. 20 statement. Bangalore-based Kingfisher said in response that it’s halting all reservations until it can restore flights.
The move adds further pressure on Kingfisher’s billionaire Chairman Vijay Mallya as he seeks investments for an airline struggling with 86 billion rupees ($1.6 billion) of debt after five consecutive years of losses. The carrier hasn’t flown since a staff walkout began Oct. 1.
“They brought this situation on themselves after they ran out of cash,” said Harsh Vardhan, chairman of Starair Consulting, a New Delhi-based company that advises airlines. “Unless the promoter comes up with more equity, I don’t think there will be any institutional or airline investor willing to put their money” into Kingfisher, he said.
Kingfisher failed to address any of the issues raised by the regulator in an Oct. 2 notice, the ministry said. The carrier hasn’t indicated when it will submit a detailed operational-preparedness plan, and the regulator couldn’t grant a request for more time to file a reply, it said.
Shares of Kingfisher fell by the daily limit of about 5 percent to 10.85 rupees in Mumbai trading today. The stock has dropped 48 percent this year, after plunging 68 percent in 2011.
Kingfisher is in talks with foreign airlines for a stake sale, Mallya said last month. Prime Minister Manmohan Singh’s government last month allowed airlines from outside India to own as much as 49 percent of carriers based in the country as part of a push to attract investment and boost growth.
Mallya is also discussing a stake sale of his United Spirits Ltd. (UNSP) with Diageo Plc. (DGE)
The license suspension “will allow Kingfisher time to rethink about complete revival or assess damages due to possible closure rather than restarting a five-aircraft operation,” Kapil Kaul, head of the CAPA Centre for Aviation consulting company in India, said in an e-mail. A revival will be dependent on the founders raising a minimum of $600 million, which is highly unlikely, he said.
The airline defaulted on loans and interest payments on several occasions in the year ended March 31, the carrier’s auditor said in the company’s annual report. Mallya gave personal guarantees totaling 59 billion rupees for Kingfisher loans, according to the report.
On Oct. 12, a court in Hyderabad, southern India issued warrants against Mallya and four other Kingfisher officials for failing to appear at a hearing about the carrier bouncing checks issued to the city’s airport operator. The warrants and lawsuit were subsequently withdrawn after the carrier settled the payments.
Kingfisher has an operational fleet of seven Airbus SAS A320 jetliners and three Avions de Transport Regional turboprop aircraft. It has enough staff for 60 planes, according to Arun Mishra, the aviation regulator.
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