CAPA’s 5-point prescription for Kingfisher Airlines: shut down, restructure, reorganize
Amid all the turbulence surrounding Kingfisher Airlines, the Centre for Asia-Pacific Aviation (CAPA) India on Friday released a report, saying the airline should shut down voluntarily and reorganise.
“While speculation continues on whether the airline will resume operations tomorrow or next week, CAPA believes that instead the airline should voluntarily shut down in order to reorganise and restructure. This will surely provide the airline with a greater chance of an orderly recovery, even if that remains an outside chance,” the report said.
Investment from foreign airline unlikely: Even though the government has relaxed foreign direct investment rules in the aviation sector by allowing international airlines to invest in domestic peers, Kingfisher may not find many takers, the report said.
“CAPA does not expect any foreign airline to invest in Kingfisher in its current state with its massive debt burden, crippled fleet and poor employee morale. In order to become a prospective investment target, Kingfisher will first require significant recapitalisation of at least $600 million, restructuring of its debt, operationalisation of some of its grounded fleet, development of a new business case, resolution of outstanding employee issues and induction of a new management team,” it added.
Limited operations: The airline’s total operational and registered fleet has been on a constant decline. Kingfisher had a fleet of 66 registered aircraft and 56 operational aircraft in November 2011.
In March 2012, the number of registered aircraft came down to 61 and operational planes to 36. The numbers declined further in June, at 43 and 16, respectively. In September, the number of registered aircraft stood at 42, with 10 operational aircraft. Today, the number of operational aircraft has come down to seven.
While the operating schedule has been downsized, “the airline carries the fixed costs of a fleet of 42 aircraft”, says the report. “Its limited operations simply cannot expect to generate sufficient cash to meet its obligations”.
Further damage to reputation at risk: The goodwill of an airline — among employees, vendors, and, most important, customers — is critical for its existence, and this reputation has been badly tarnished, the report said.
“Employees reflect the personality of an airline, and when morale has been extinguished because salaries are outstanding for up to seven months, it is akin to operating an airline without a soul. Continuing in this manner can surely only inflict further damage to the brand not only of the airline, but the wider UB Group. In these circumstances, we are of the opinion that it would be better to voluntarily shutdown and focus on an orderly restructuring rather than limp along.”
Safety at risk: The poor morale of employees may directly affect the safety of the flights, as well as the passengers, as was seen by the strike by the flight engineers because of which flights could not operate.
“Of greater concern is the fact that not only are service standards being compromised but that the continued personal stress being experienced by employees could result in heightened safety risks. Maintenance and operating procedures may be being followed on paper but the regulator cannot monitor the emotional mindset of employees.”
A larger gain: According to the report, propping up weak organisations, rather than allowing them to fail, will ultimately lead to greater economic loss. Operating with a truncated schedule, Kingfisher accounts for just 3.2 per cent of the domestic market share, due to which “a shutdown of the airline would have minimal impact on capacity and fares”. The report adds allowing the airline to shut down “can be a healthy, if temporarily painful process for the maintenance of a competitive and sustainable sector”. India should not be afraid of airline failure—since 2008 there have been over 300 airline failures globally, the report adds
Source: NDTV profit
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