India's Kingfisher walks a tightrope on labor unrest

Tue Oct 2, 2012 7:28am EDT
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By Anurag Kotoky

NEW DELHI (Reuters) - India's Kingfisher Airlines Ltd (KING.NS: Quote), controlled by liquor baron Vijay Mallya, cancelled all flights through Thursday because of labor unrest and was ordered by the aviation regulator to submit a revival plan before it can fly again.

The heavily indebted airline, which has been months behind on salary payments, saw its operations come to a grinding halt on Monday after disgruntled engineers responsible for aircraft safety checks threatened other employees reporting to work.

While protests by frustrated Kingfisher employees and flight cancellations are not new, the latest episode will undermine confidence about the airline's viability at a time when the former No.2 carrier by market share is seeking fresh funds to stay aloft.

"Right now the best thing for Mallya would be to close the airline completely, get his act together, make a restructuring plan, see where he can money to invest in it, negotiate with foreign investors and then come out with a brand new plan of action in front of him," said Rajan Mehra, the India head of U.S.-based private jet operator Universal Aviation, and an aviation expert.

Kingfisher is struggling under a $1.4 billion debt load after borrowing heavily to expand its fleet. Banks have refused to lend Kingfisher more money unless it can secure new capital from investors.

As of February, State Bank of India (SBI.NS: Quote), the country's top lender, had an exposure of 14.08 billion rupees ($267.55 million) to Kingfisher. No. 2 state-run lender Punjab National Bank (PNBK.NS: Quote) was owed 7.04 billion rupees, while IDBI Bank Ltd (IDBI.NS: Quote) had an exposure of 6.96 billion rupees.

Kingfisher is in talks with a couple of airlines for investment and hoped discussions would conclude in three months, the aviation regulator said on Tuesday.

Last month, India allowed foreign airlines to buy stakes of up to 49 percent in local carriers, a long-awaited policy move lobbied for by Kingfisher and seen as providing a lifeline to the country's debt-laden operators.   Continued...

People are silhouetted as Kingfisher Airlines' aircrafts are seen parked at an airport in New Delhi October 1, 2012. REUTERS/Mansi Thapliyal