Instead of individually initiating litigation, banks are likely to entrust SBI, the lead bank of the consortium, the responsibility to take legal recourse.

Banks may be able to recover not more than a quarter of their loan exposure to the beleaguered Kingfisher Airlines as competing recovery action could be initiated by tax authorities, oil companies, and aircraft leasing companies, say bankers and aviation analysts.

A consortium of 17 banks, including State Bank of India, IDBI Bank, Bank of India, Bank of Baroda and Punjab National Bank, has a loan exposure of about Rs 7,000 crore to the grounded airline.

Bankers say it is difficult to estimate how much Kingfisher Airlines (KFA) owes to tax authorities, oil companies, and aircraft leasing companies. Besides these entities possibly taking recourse to the legal route, the airline may have to reckon with unpaid employees salaries and dues owed to the airport operators.

A core group of four banks – State Bank of India, Punjab National, Bank of India and IDBI Bank – which met today, decided to engage the services of a solicitor firm to help them with the recovery process. The remaining 13 banks have mandated these four banks to take appropriate legal action on their behalf.

Instead of individually initiating litigation, banks are likely to entrust SBI, the lead bank of the consortium of KFA lenders, the responsibility to take legal recourse, including tapping the Debt Recovery Tribunal and resorting to possession of assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

The assets pledged with banks include the Mumbai and Goa properties, shares of United Spirits Ltd. and Mangalore Chemicals and Fertilizers Ltd., two helicopters. Besides, the airline’s promoter has given personal guarantee and United Breweries Holdings has given corporate guarantee to KFA’s loans, which could be invoked.

Meanwhile, in the backdrop of the bankers’ decision to go ahead with loan recovery, the end game seems to be near for KFA. Aviation analysts and airline sources say the debt-laden airline has hit a wall and any recovery from hereon seems difficult.

Lenders have the first charge on the airline’s fixed assets as well as the brand. “According to the last annual report, UB Holdings had given a corporate guarantee of Rs 10,000 crore. The parent company will have to deal with all the recovery proceedings,” said Sharan Lillaney, aviation analyst, Angel Stock Broking.

The airline has total liabilities amounting to over Rs 15,000 crore, which includes dues to banks, oil companies, leasing companies and employees, he added. SBI has the maximum exposure at Rs 1,600 crore. Banks are expecting to get 25-30 per cent of the total exposure, analysts say.

Aviation analysts say that the once successful airline’s brand value was estimated to be Rs 3,000 crore. “But it will be next to impossible to fetch that much. Though it has been a successful brand for about a decade, it is unlikely that anyone will be willing to buy the brand,” Sharan added. A foreign airline partner seems a distant dream for the debt-laden Kingfisher Airlines. With Etihad joining hands with Jet Airways and talks of Air Asia teaming up with Capt. Gopinath, Kingfisher Airlines seems to out of the race, aviation analysts added.

(This article was published on February 13, 2013)
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