by Vinay Bhaskara and Devesh Agarwal
Earlier this month, defunct Indian carrier Kingfisher Airlines, which has been grounded since 20th October, 2012 when the Indian regulator, the Directorate General of Civil Aviation (DGCA) suspended its flying license, filed its annual report for fiscal year 2012-2013.
Instead of focusing on finding a way to pay off the nearly Rs. 7,000 Crore debt the airline owes to a consortium of lenders led by the State Bank of India, Kingfisher used the annual report as a mouthpiece to announce a lawsuit filed in the City Civil Court at Bangalore against engine manufacturer International Aero Engines (IAE) for $235 million (damages of $210.4 million plus $24.6 million in punitive damages), claiming that the IAE V-2500 A5 engines used to power Kingfisher’s once 32-strong fleet of Airbus A320 family aircraft were “inherently defective, both in design and manufacture.” The Kingfisher annual report says.
United Breweries (Holdings) Limited has filed a suit in the City Civil Court at Bangalore against International Aero Engines AG, its shareholders / joint venture partners and your Company being O.S. No. 6406 of 2012, alleging that the IAE V-2500 A5 engines supplied to your Company were inherently defective, both in design and manufacture, and has claimed damages of USD 210,400,000 plus Rs. 1,621,000,000 (aggregating to approximately $24.557 million as per the current exchange rate of approx Rs. 66 per US Dollar) and has reserved liability to claim further damages. No relief is sought against your Company in the said suit.
Considering that it did not operate for most of the year, if Kingfisher still managed to find enough cash to pay CEO Sanjay Aggarwal US $591,000 in an annual salary, clearly demonstrates a carefully managed business strategy will allow the airline to slowly pay off debt without resorting to doomed strategies such as this lawsuit.
Kingfisher restart would be a strategic mistake
Kingfisher also continues to pursue the flawed idea that the carrier should “restart” operations with up to 20 aircraft, or that the carrier will make back the money by selling itself to an investor. This is a mistake. Re-launching operations in today’s Indian airline industry would be a tragic mistake. For starters, the Indian macroeconomic picture is very poor; the Indian Rupee has continued to decline and growth projections for the fiscal year have slipped beneath 5%. This has driven demand for Kingfisher’s premium style product lower than when Kingfisher shut down, and that too up against a somewhat re-vitalized Air India, a re-capitalized Jet Airways, a market leading IndiGo, and a soon to arrive behemoth AirAsia India.
It is better to leave Kingfisher’s aircraft rotting on tarmacs across the country where they could at least serve as a reminder to Dr. Mallya, how he, and his incompetent mis-managers, drove a great airline concept in to tatters.