India warns could cancel Kingfisher Airlines licence

NEW DELHI Tue Mar 20, 2012 7:39am EDT

An employee of Kingfisher Airlines works next to a ''counter closed'' sign at their booking office at Mumbai's domestic airport, in this February 20, 2012 file picture. REUTERS/Vivek Prakash/Files

An employee of Kingfisher Airlines works next to a ''counter closed'' sign at their booking office at Mumbai's domestic airport, in this February 20, 2012 file picture.

Credit: Reuters/Vivek Prakash/Files

NEW DELHI (Reuters) - India's aviation minister warned Kingfisher Airlines (KING.NS) that its licence may be cancelled if safety norms and financial viability conditions are not met, in the latest blow to the beleaguered carrier.

Kingfisher Airlines, which has debt of $1.3 billion, is scrambling to raise funds as banks have refused to lend more for day-to-day operations. A big cutback in flights has reduced its revenue, leaving the carrier with little cash to pay its employees, airports and tax authorities.

Vijay Mallya, the flamboyant liquor baron who owns a majority of Kingfisher, was due to meet the aviation regulator later on Tuesday or on Wednesday to talk about a turnaround plan for the airline, said Aviation Minister Ajit Singh.

"If he gives a plan and says I have that many planes, that much schedule, then why should we cancel?," Singh said.

"The problem is, last two-three months, he has given several plans and he has not adhered to any of them," Singh said.

There are no provisions for companies to declare themselves legally bankrupt in India.

"If passenger safety is compromised we'll not let any airline fly. Safety norms also involves financial viability," Singh said.

Kingfisher has drastically scaled back its operations.

It is now using just 18 planes, according to Singh, from a fleet that used to number 64. Cancellations have disrupted the travel plans of thousands of passengers across the country and pushed up fares.

A Kingfisher spokesman did not respond to a request for comment.

Shares of Kingfisher Airlines, which has a market capitalisation of about $200 million, hit an all-time low in early trade on Tuesday. They were down 6.47 percent in afternoon trade, lagging the 0.32 gain in the broader market .BSESN.

UNFRIENDLY INDIAN SKIES

Kingfisher has never made a profit in a struggling Indian airline industry that is saddled with high fuel costs, stiff competition and low fares.

Five of India's six airlines are in the red and all domestic carriers together are likely to lose $2.5 billion in the fiscal year ending March, according to the Centre for Asia-Pacific Aviation CAPA.L, an industry consultancy.

"As a government, we don't want to shut down any industry. There are employees and customers involved. Kingfisher had 22 percent traffic. If we close it suddenly, where will the fares go?," Singh said.

Global industry body IATA has suspended Kingfisher from its settlement system, restricting bookings through overseas agents, hitting ticket sales.

On Monday, the last of Kingfisher's independent directors resigned.

CASH STRAPPED

The troubled carried needs at least $500 million immediately to keep flying and $800 million to return to full operations, according to CAPA

Kingfisher's billionaire chairman owns one of the world's most expensive yachts as well as cricket and Formula One teams, but he has been unable yet to raise fresh equity for an airline that was once India's second biggest by passengers.

"Mallya has been talking a lot about capital but I think he's only doing it to calm the situation and postpone the problems. We have not seen any money," said a senior executive at a state-run bank, which recently downgraded Kingfisher's loan to non-performing status.

"Right now, it is a complicated situation. We are closely monitoring," said the banker, who requested anonymity as he was not allowed to talk about clients.

Last week, Mallya assured its employees of a full recovery plan in place in 2-3 days to address its financial issues and restore dozens of flights.

It recently also scaled back its money-losing long haul international flights to cut costs.

(Writing and additional reporting by Swati Pandey; Editing by Tony Munroe and Robert Birsel)

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