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Indian airline defaults on payments to GE  Nov 05, 2008

The king of good times has flown into fresh turbulence. Liquor baron Vijay Mallya's Kingfisher Airlines has defaulted on payment of lease rentals to GE Commercial Aviation Services (GECAS) for four A320s, according to a complaint filed by the US company with India's aviation regulator.

Upset at the default, GECAS, one of the world's top aircraft lessors, has asked the Directorate General for Civil Aviation (DGCA) for permission to repossess the aircraft and has demanded that the aircraft be de-registered from the airline.

However, Kingfisher, which is controlled by Mallya's UB Group, denies any default and has obtained a stay order from the Karnataka HC to prevent the repossession.

"There is no default on part of Kingfisher Airlines. Had there been a default, the court would not have admitted our case. The fact that the court granted an immediate relief to us... demonstrates that the airline has an obvious and prima-facie case," a Kingfisher Airlines official, who asked not to be named, told ET.

The official, however, admitted that Kingfisher had some disputes with GECAS on the terms of return of the aircraft and accused the US company of being "unreasonable." Kingfisher Airlines declined to give details of the dispute on the ground that it was before the court. "GE treats its business and customer discussions with high confidentiality and is unable to disclose any details," a GECAS spokesperson said.

A DGCA official confirmed that GECAS had written to the aviation regulator for repossession of the aircraft. "But we have not taken a call on that. We have to hear both parties before taking a decision," said the official, who asked not to be identified.

The tussle with GECAS is the latest instance of the cash crunch being faced by Kingfisher. The airline's pending dues with oil companies and airports have been in the news recently. Kingfisher Airlines posted a net loss of Rs 483.2 crore for the quarter to September 30 this year, almost double its net loss of Rs 253.1 crore in the same period a year earlier.

Kingfisher's travails are a reflection of the tough times being faced by India's aviation sector, which has been hobbled by predatory pricing by airlines to fill flights and rising costs, most notably in the price of fuel. Last month, it announced a deal with larger rival Jet Airways under which the two are to share capacity to cut costs.

India's airline industry is facing a severe financial crisis and is expected to post losses of around $2 billion during the current financial year.

Faced with overcapacity in the domestic market, coupled with falling traffic, Kingfisher has already returned two of its aircraft to lessors and is in discussion to return eight more. The UB group airline has also deferred its plan to operate international flights from India to Hong Kong, Singapore and San Francisco.

Indian airline defaults on payments to GE
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