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Kingfisher Cuts Flights After Tax Office Freezes Accounts

Kingfisher Airlines Ltd., the Indian carrier seeking new funds after losses, cut flights after the tax office froze the company’s bank accounts affecting the airline’s ability to make payments.

“The prime reason for the current disruption in our flight schedules is the sudden attachment of our bank accounts by the” income tax department, the Bangalore-based company said in an e-mailed statement yesterday. The carrier, controlled by billionaire Vijay Mallya, said it’s in talks with tax authorities to agree on a payment plan and “get the bank accounts unfrozen at the earliest.”

Kingfisher, which Feb. 18 said it cut about 13 percent of flights after bird strikes and other “unexpected events” forced airplanes out of service, said it will submit to India’s aviation regulator today a plan to restore the full schedule. The groundings following damage to engines after they sucked in birds may also reflect a shortage of power plants cited by the regulator last month.

“If you’ve got a spare engine that’s a one-to-two day problem,” said Neil Hansford, chairman of Strategic Aviation Solutions, an adviser to airlines based in Port Stephens, Australia. Cutting flights may also cause costs as the carrier will have to find other flights for passengers or refund them, he said.

As many as 32 daily flights were canceled starting Feb. 17, Kingfisher said Feb. 18. The carrier plans to resume its full schedule of 240 flights a day this week, it said at the time.

Full Refund

“About 15 percent of our flights operating consistently for the past 3 months have been canceled and we have done and are doing our best to inform guests in advance,” it said yesterday, without elaborating. Kingfisher offered a full refund.

Kingfisher Feb. 18 denied closing any operations permanently in a bid to reassure customers about its viability after posting more than 10 straight quarterly losses, having accounts frozen by authorities and cutting flights last year.

The airline has plunged 39 percent in the past 12 months in Mumbai trading. It dropped 1.3 percent to 26.65 rupees on Feb. 17. Markets were closed yesterday because of a holiday.

The Directorate General of Civil Aviation has summoned Sanjay Aggarwal, the airline’s chief executive officer, to explain today the reasons for the cancellations, the Press Trust of India reported. The carrier had not informed the regulator about cutting flights, the news agency cited Director General E.K. Bharat Bhushan as having said.

Three calls by Bloomberg News to Bhushan’s office and mobile phone yesterday, a national holiday, weren’t answered.

Kingfisher said it had kept the regulator informed of the disruptions and would provide all details today.

New Investor

Kingfisher, Jet Airways (India) Ltd., the nation’s biggest carrier, and discount airline SpiceJet Ltd. all posted third-quarter losses as higher jet fuel costs and price wars eroded gains from rising travel. Kingfisher’s loss in the quarter ended Dec. 31 widened to 4.44 billion rupees ($90 million) from 2.54 billion rupees.

The airline is seeking new investment as it struggles under $1.3 billion of debt. Kingfisher has also met with banks and requested additional working capital. The carrier hasn’t asked the government for any “bail out,” it said yesterday.

Brand, Office Furniture

“New investors in Kingfisher haven’t yet materialized,” said Binit Somaia, a Sydney-based director at CAPA Centre for Aviation, an industry consultant. “A serious investor would only enter after having carefully understood the risks associated with the transaction.”

The airline, which fell to fifth in the Indian market in December from second in October, has grounded 12 of its existing 27 Avions de Transport Regional planes and delayed Airbus SAS A380 deliveries beyond 2016. ATR, a maker of turboprop aircraft, said last month it canceled a 38-plane order from Kingfisher after the carrier missed payments.

The airline has pledged its brand, office furniture and other assets against a debt of about $1.3 billion. Kingfisher said Jan. 19 it’s in talks with potential investors including SC Lowy Financial Services.

India may soon let airlines import jet kerosene directly to save on local sales taxes as high as 30 percent, the Civil Aviation Ministry said in a Feb. 16 statement.

In November, chiefs of Indian carriers met Prime Minister Manmohan Singh as they sought government assistance to stem industry losses. The nation’s airlines will probably lose $2.5 billion in the year ending March, according to CAPA.

Kingfisher had a fleet of 64 planes ranging from ATR turboprops to Airbus A330s as of Dec. 31, according to a Feb. 15 company statement.

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