That suicide by a Kingfisher employee’s wife on Thursday because her husband had not been paid for five months and even though the airline has got a reprieve from the banks to withdraw Rs 60 crore have cut no ice with the striking employees indicate that a viable and long-term solution is needed for the airline.
On Friday, the Government finally woke up to its responsibilities and issued a show-cause notice to the airline seeking replies in 15 days as to why its licence should not be “cancelled or suspended” as it had failed to establish a “safe, efficient and reliable service”.
This time the airline also accepted that it had received the notice, something which it denied when former Directorate General of Civil Aviation (DGCA) E.K. Bharat Bhushan reportedly sent a similar notice in March this year.
Fed up with empty assurances from the management and the dilly-dallying of the authorities, sections of Kingfisher Airlines employees had struck work on October 1 paralysing the airline’s operations Consequently, the management was left with no option but to declare a partial lockout. Though initially the partial lockout was till October 4, it was later extended till October 12.
Little wonder then that experts are suggesting a change in law to have something on the lines of chapter 11 bankruptcy in the US. According to www.uscourts.gov, chapter 11 provides “for reorganisation, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganisation to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11)”.
Long-drawn process
One significant aspect of chapter 11 is that a company can in anticipation of its financial problems opt for this legal course rather than waiting till it is bankrupt. Over the last few months, Kingfisher’s management knew that the situation was going to only get worse. In hushed tones several key people in the airline had told journalists that the situation could not be allowed to continue beyond September. Would a chapter 11 type of recourse have helped matters?
Of course, changing the law is not easy. In India, the closest that we have to the US bankruptcy law is the Sick Industrial Companies (Special Provisions) Act 1985 (SICA). SICA was enacted to take preventive or remedial measures for sick companies. The sickness of a company is linked to default of payment to its creditors or if a demand is made by a secured creditor representing half or more of its debt. A board was set up under SICA to deal with the revival and rehabilitation of sick industrial companies. Experts, however, maintain that SICA lacks teeth and declaring bankruptcy in India is a long-drawn-out process, which many companies are not inclined to follow.
For one and all
Having a chapter 11 kind of law will mean that it will have to be applicable across sectors and industries. Civil Aviation Minister Ajit Singh told Business Line that having such a type of law in India may be a good idea but quickly added that the law would have to be for all, not just civil aviation. Dhiraj Mathur, Executive Director and Head of National Aerospace and Defence Practice, PriceWaterhouseCoopers, concurs with the Minister.
Clearly this can be nothing but a long-term solution. And till that happens or till the Government carries out its threat of cancelling or suspending Kingfisher’s licence, the situation will continue to become messier. For instance, in very many ways stopping its operations is helping Kingfisher curtail its losses pretty much in the manner in which Air India saw its losses drop when the Maharaja curtailed its flights following a 58-day agitation by its pilots.
At a meeting with the DGCA, Kingfisher’s CEO Sanjay Aggarwal is believed to have said that the airline was incurring a daily loss of Rs 8 crore by operating its severely curtailed flight schedule, while shutting the airline had brought down losses by half.
Then comes the employee dues. While many think that the Rs 60 crore that the airline is getting could be used to pay off the backlog of salaries, what options do the employees really have to ensure that they are paid not only the backlog but also future salaries? While sympathising with the plight of the employees, Government officials say that they should look at the various labour laws in the country to get their unpaid wages.
So till such time as a permanent solution is found, there could be many more Kingfishers where the situation will remain going going…