Financial troubles put Kingfisher Airline’s entry in to oneworld on indefinite hold

With just one week to go, Kingfisher Airline’s entry in to oneworld has been put on “indefinite hold”.

An official statement released a few minutes ago, says

India’s Kingfisher Airlines and oneworld® today agreed to put the airline’s entry into the alliance on hold to give it time to strengthen its financial position.

Quoting oneworld CEO Bruce Ashby

“These are turbulent times for the airline industry in India and many other parts of the world. We have been working closely with Kingfisher Airlines over the past months and it has become increasingly clear recently that the airline needs more time to resolve the financial issues it is confronting before it can be welcomed into oneworld.

“We wish it well during this process and will work with Kingfisher Airlines with the aim of setting a new joining date once it is through this current period of turbulence.”

Apparently this sequence of events began a few days ago when Kingfisher Airlines was suspended from the IATA Clearing House (ICH). IATA is the International Air Transport Association which represents the world’s airlines. The IATA Clearing House is similar to an inter-bank clearing house, but for the airline industry and provides services settling accounts between the world’s airlines, associated companies and travel agents and partners. As per IATA more than 350 members and participants use the ICH to settle millions of dollars worth transactions every day.

As per sources inside Kingfisher, the airline had to keep a security deposit of $3.5 million with ICH. Some days ago, for whatever reason, the airline made its payments using the security deposit. Even though Kingfisher’s payments were current, because of no security deposit, the airline was in a default status with the ICH, effectively freezing their account. This made the airline’s flight coupons useless since the ICH would not process any Kingfisher document, ticket, or payment. Hence no one in the international airline industry would be able to deal with Kingfisher.

The zeroing of the security deposit also triggered an automatic financial review, so when Kingfisher went back to ICH to replace the deposit and re-activate their account, the ICH, citing the airline’s poor financials, demanded an increase in the deposit to a little over $8 million. This unexpected demand has created all sorts of problems for the financially ailing carrier. With Kingfisher’s bad luck, Hungarian carrier Malev has also failed yesterday. These development have spooked the member airlines of oneworld, who demanded that Kingfisher first set its house in order before entering the alliance.

It is not clear whether Kingfisher has paid the security deposit and re-activated its ICH account. Calls and messages to the official spokesperson of Kingfisher Airlines were rejected and unanswered.

Kingfisher Airlines Chairman Vijay Mallya put on a brave face and said

“In light of the many priorities centred around Kingfisher Airlines’ recapitalisation efforts, we felt it prudent to defer our entry into the alliance for a little while. This will allow us the opportunity to focus on the issues at hand and we look forward to being part of the oneworld alliance very shortly.”

Keeping in mind the desperately needed traffic and additional revenue the alliance membership was to bring, this development is a body blow to Kingfisher. Insiders say that Dr. Mallya is going to keep that airline limping along till Foreign Direct Investment in Indian carriers is approved by the Indian government.

Airline sources who are not not authorised to speak to the media, indicate that Kingfisher’s entry into oneworld may be re-considered after airberlin and NIKI enter the alliance on March 20. These sources are of the opinion that Kingfisher will enter oneworld before Malaysia Airlines does, but one has to wait and see.

This is the second re-buff to an Indian carrier. Last August, the Star Alliance put the membership of national carrier Air India on indefinite hold.

What is your view? Do these developments spell a death knell for the alliance ambitions of Indian carriers? What will be the impact on Kingfisher?

Post a comment.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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