India's Kingfisher halts flights for another week

AP News
Posted: Oct 05, 2012 4:25 AM
India's Kingfisher halts flights for another week

MUMBAI, India (AP) — India's Kingfisher Airlines has extended its shut-down and won't fly any planes for another week unless it can convince pilots and engineers who haven't been paid for months to return to work.

Chief executive Sanjay Aggarwal has been crisscrossing the country to meet disgruntled employees but hasn't reached a deal, forcing the airline to prolong the shutdown that was meant to end Friday.

"We regret that the illegal strike has still not been withdrawn and normalcy has not been restored in the company, thereby continuing to cripple and paralyze the working of the entire airline," spokesman Prakash Mirpuri said in a statement.

Workers are protesting over months of unpaid wages. India's airline regulator is worried about safety standards because engineers are on strike and can't certify that the planes are safe to fly.

"What we need is concrete plans from Kingfisher," Civil Aviation Minister Ajit Singh told reporters Thursday. "How will they maintain their schedule and how will they make sure their planes are safe to fly?"

Vijay Mallya, the flamboyant liquor baron who founded Kingfisher, built the airline in the image of Pan Am circa 1960, with stewardesses in short skirts and a reputation for good food and good service.

But Mallya never managed to translate that elegance into profit, burdened by problems such as high tax and fuel costs in India's hyper-competitive market, as well as bad decisions. Analysts frowned on the company's 2008 acquisition of budget carrier Air Deccan — Mallya himself dumped his low-cost business model in 2011 — and its ill-timed move into international service, just as the global economy tanked.

The company hasn't made a profit since it was founded in 2005, according to FactSet, a financial information provider.

Today, intensifying doubt that the cash-strapped carrier will be able to crawl out from its pile of debt drove the stock down 17.8 percent for the week through Thursday.

The airline's bad news deepened Friday, with a spate of front-page newspaper articles about the suicide of a Kingfisher employee's wife. Before hanging herself, the woman reportedly left a note saying that her husband hadn't been paid for five months and she could no longer cope with the financial stress.

The Center for Asia Pacific Aviation, an airline industry research group, called on Kingfisher to shut down voluntarily in order to "reorganize and restructure."

CAPA also lambasted regulators for waiting for employees to ground the carrier instead of taking swift action to deal with safety concerns arising from angry staffers who haven't been paid in as long as seven months.

CAPA said Friday that saving the airline would require over $1 billion, including an immediate capital infusion of $600 million. Indian banks, which hold much of Kingfisher's outstanding debt, seem ready to work with the company, rather than face write-downs, but the UB Group, Kingfisher's parent company, would also have to come up with more cash, CAPA said.

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Mallya and his UB Group have already pumped in nearly $1 billion to save the carrier, according to CAPA.

Mallya's liquor subsidiary, United Spirits, said last week it was talking with British drinks giant Diageo about a stake sale. Mallya has also said he's in talks to sell a stake in Kingfisher Airlines, after New Delhi last month permitted foreign carriers to invest up to 49 percent in domestic airlines. But analysts say he's unlikely to attract a foreign partner until Kingfisher clears some debt, resumes flying and improves employee morale.

CAPA puts Kingfisher's outstanding debt at $2.5 billion and says its accumulated losses swelled to $1.9 billion by the end of June.

The airline is flying less than one-fifth of the number of planes it was a year ago and its share of the domestic market plunged to 3.2 percent in August, CAPA said.

"Businesses sometimes fail, there is nothing wrong with that," the group wrote.