NEW DELHI Debt-crippled Kingfisher Airlines(KING.NS) stood on the brink of collapse on Tuesday after nearly a week of flight cancellations and the resignation of dozens of its pilots.
Vijay Mallya, the flamboyant liquor baron who owns a majority stake in Kingfisher, said he was determined to keep the airline flying and blamed a cash crunch on the tax authorities which have frozen its bank accounts over outstanding dues.
"I am absolutely committed to keeping the airline going unless some government agency wishes to ground it," Mallya told reporters. "The point is our banks accounts have been frozen by income tax authorities very suddenly and that has crippled us."
There are no provisions for companies to declare themselves legally bankrupt in India. Analysts said Kingfisher could simply shut down overnight if it fails to secure fresh equity that would shore up the sagging confidence of its creditors.
"If they don't get fresh equity, obviously they are doomed. They don't have the money for maintenance, for employee salaries, for anything," Sharan Lillaney, an aviation analyst at Angel Broking, told Reuters.
Kingfisher shares plunged nearly 20 percent on Tuesday ahead of a meeting between the airline's top executives and the DGCA, which demanded an explanation for the cancellation of more than 100 flights over the past four days.
Of the 64 planes in its fleet, Kingfisher is now using just 28, disrupting the travel plans of thousands of passengers across the country.
However, the company's shares recovered to end slightly higher after the regulator said Kingfisher had assured it that bank funding was on its way.
The regulator gave Kingfisher Airlines 24 hours to come up with a revised schedule for the aircraft still in operation.
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NEWSMAKER: Turbulent times for India's "King of Good Times", click here
Reuters Breakingviews: Why 100 pct FDI could save Kingfisher, click here
NOT SO GOOD TIMES
With one of the world's most expensive yachts and a cricket and Formula One team, Kingfisher Airlines' billionaire chairman is known as the "King of the Good Times" for a jet-set lifestyle that has shadowed India's own rise as an economic power.
The 56-year-old Mallya is also chairman of United Breweries (Holdings)(UBHL.NS), a conglomerate with interests as diverse as aviation, breweries, biotechnology and real estate. The group has annual sales of more than $4 billion.
But his airline - named after his famous brand of beer - has become one of the main casualties of high fuel costs and a fierce price war between a handful of budget carriers which, between them, ordered hundreds of aircraft for delivery over the next decade in an ambitious bet on the future.
The Mint newspaper, citing a government official, said Kingfisher will return two Airbus A320s to lessors due to payment defaults. Other media reports said that 50 Kingfisher commanders had resigned over the past week, taking to more than 300 the number of pilots who have quit since September.
"A panic button has already been pressed," said one Kingfisher pilot, who declined to be named. "Everyone is looking out for opportunities. Resignations are unlikely to stop."
He provided Reuters a February 11 company memo to staff which opened with: "Let me start by saying you are the best", and went on to explain why salaries had not been paid and offered employees a cash advance of 5,000 rupees to help them get by.
An executive at MakeMyTrip (MMYT.O), India's largest online travel reservations firm, said it was advising clients not to book flights on Kingfisher following the rash of cancellations.
Rising jet fuel prices and cut-throat fare competition have taken their toll across the Indian airline industry despite passenger growth of nearly 20 percent last year.
Five out of six major carriers are losing money, and analysts estimate that the industry overall is on course to lose up to $3 billion for the financial year ending next month.
Kingfisher, which until this year was India's second-largest airline, has not turned a profit since it was founded in 2005 and is carrying a debt burden of $1.3 billion.
Its revenue has been in decline since the end of last year and now, strapped for cash, staff are not being paid and tax bills remain outstanding - adding a further $477 million to its debt, according to Kotak Institutional Equities.
Shares in Kingfisher have dropped 59.7 percent since the start of last year, shrinking its market value to $269 million. Its domestic market has almost halved in recent months from about 20 percent.
STRAPPED FOR CASH
The airline's banks, which own about a quarter of the carrier taken through an earlier debt-for-equity swap, are unwilling to restructure their loans further until fresh equity is found.
Mallya blames that on government policy, which is now debating a proposal to allow foreign airlines to acquire up to a 49 percent stake in domestic airlines but for now bars foreign direct investment in Indian carriers.
"We have been requesting working capital from our consortium of bankers for a long time but the consortium of bankers took the view that the government policy was not favourable to the industry," he said on Monday.
Lenders met last week to discuss a proposal from SBI Capital Markets, the investment banking arm of State Bank of India, to extend lines of credit to the beleaguered carrier.
"Whatever we have been seeing in the media in the last two days has only added fuel to fire," said a senior official at state lender Bank of Baroda (BOB.NS), which has loans of more than 5 billion rupees to Kingfisher Airlines.
"We want to recover our money but we need to figure out how," added the official, who asked not to be named.
The government has resisted calls for the state to rescue Kingfisher Airlines, the airline has said it is not considering a rights issue and Mallya's UB Group has ruled out using its overseas alcohol assets to raise funds for the carrier.
"There is a feeling that Vijay Mallya doesn't want to invest his money in Kingfisher," said the pilot. "Why else would someone as rich as him want to delay staff salaries for months? He only wants to raise money from the market, not invest his own money."
(Writing by John Chalmers; Additional reporting by Sumeet Chatterjee and Swati Pandey in MUMBAI; Editing by Jonathan Thatcher)