Kingfisher Must Pay Wages Before Flying Again, Official Says

Kingfisher Airlines Ltd. (KAIR), the Indian carrier that’s grounded its fleet and not paid staff since April, must settle wages before it can resume flights, according to an official at the nation’s civil aviation ministry.

The airline’s management was told about the requirement at a meeting yesterday, said the official, who declined to be identified citing government rules. Half of the carrier’s staff have been paid for March and the rest will get these wages soon, Kingfisher’s Chief Executive Officer Sanjay Aggarwal told reporters after the meeting in New Delhi. He didn’t comment on pay for subsequent months.

The decision increases pressure on Kingfisher’s billionaire Chairman Vijay Mallya, who is seeking to raise cash by selling a stake in a liquor maker after an almost-yearlong failure to find an investor for the airline. The Bangalore-based carrier has halted flights through at least tomorrow after locking out employees who were protesting about not being paid.

“Either it will close down now or with great difficulty survive for another 30 days, unless there’s an investor,” said Harsh Vardhan, chairman of Starair Consulting, a New Delhi-based company that advises carriers. “It’s sad they are putting the blame on employees, because nowhere in the world anyone would accept this kind of situation.”

Prakash Mirpuri, a spokesman at Kingfisher, didn’t reply to questions about when the company would be able to pay salaries or find an investor. The airline has about 4,000 employees.

The carrier intends to pay outstanding wages using 600 million rupees ($11.5 million) in frozen bank accounts, the management said at yesterday’s meeting, according to Arun Mishra, the Director General of Civil Aviation.

Stake Sale

Kingfisher also said it’s in advanced talks on a stake sale with two overseas airlines and it aims to conclude a deal within three months, according to Mishra. The government ended a ban on local operators selling stakes to foreign airlines last month. Kingfisher has been seeking investment since at least November, when it also announced flight cuts because of losses.

The airline will make a decision tomorrow about when it will resume services, Aggarwal said. Talks are under way with employees and the carrier will submit a plan to the regulator in a couple of days, he said.

Halved Losses

The shutdown has let Kingfisher halve its daily losses to 40 million rupees, Mishra said, citing comments made in the meeting. The airline has 10 planes, comprising seven Airbus SAS A320s and three Avions de Transport Regional turboprop aircraft. It has enough staff for 60 planes, Mishra said.

The carrier, which has posted five straight annual losses, fell by its daily limit of 5 percent to 15.35 rupees in Mumbai trading Oct. 1. The stock has declined 27 percent this year. Jet Airways (India) Ltd., the nation’s largest listed carrier, and budget operator SpiceJet Ltd. (SJET) have both more than doubled. Markets were closed yesterday for a holiday.

The strike includes engineers who perform pre-flight safety checks, Aggarwal said. The carrier asked police to help some staff who were physically restrained by striking employees when they tried to go to work, Mishra said. Some Kingfisher employees have stayed away for two weeks, Mirpuri said in a text message Oct. 1.

Kingfisher, named after Mallya’s flagship beer brand, has slumped to sixth from second in domestic market share after paring services and losing passengers because of flight disruptions. It had a 3.2 percent share in August, the lowest among six carriers.

The carrier has a long-term debt to total capital ratio of 162 percent, according to data compiled by Bloomberg. That compares with 58 percent at Jet and 76 percent at SpiceJet Ltd.

Cash Injection

Kingfisher’s founders have contributed 11.5 billion rupees since April 1, Mallya told shareholders on Sept. 26. The billionaire is in talks to sell a stake in United Spirits Ltd. (UNSP), the largest distiller in India, to Diageo Plc.

In July, Kingfisher scrapped about 40 flights a day after some employees refused to work because they weren’t paid. The services were restored later. The carrier also delayed payments to banks, airports, tax authorities and fuel suppliers.

The airline has pledged its brand, office furniture and other assets against 64 billion rupees of debt. It is also in talks with banks and lessors after they invoked 8.4 billion rupees of financial guarantees its parent provided.

Kingfisher has asked banks for additional working capital loans and for more time to pay existing loans, two bankers familiar with the matter said last week.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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