Creditors slap competing claims on Kingfisher Airlines

Indian banks owed about $1.4bn by Kingfisher Airlines have taped a notice on its headquarters, claiming the building was to be seized to recover some unpaid debts of the grounded carrier owned by liquor baron Vijay Mallya.

But lenders will face an uphill struggle both to take genuine control of the property near Mumbai's domestic airport and to sell it on. The building, dubbed "Kingfisher House", has also been claimed by Indian tax authorities seeking to recover some of the grounded airline's unpaid service taxes.

The conflicting claims of creditors over the prime Mumbai office building underlines how the fate of Kingfisher Airlines has been sealed only eight years after it took off to great fanfare. Even once-optimistic aviation analysts now admit it has no prospect of ever flying again.

"Any restart to me looks impossible," says Kapil Kaul, chief executive in India for the Centre for Asia Pacific Aviation. "Before the lenders had initiated repossession, we considered the restart of the airline as an outside chance. Once the lenders started taking properties, we think it's impossible."

Despite his airline's financial woes, Mr Mallya has always been known for his luxurious lifestyle. As the living embodiment of his flagship Kingfisher beer's tagline, "the King of the Good Times", he enjoys partying with Bollywood stars at his beachfront mansion in Goa, and on board his luxury yacht, the Indian Empress, which he sold two years ago but can still charter 30 days a year.

In 2011, the tycoon flew on his plush corporate jet to New Zealand to collect three bottles of century-old whisky left behind in Antarctica by the polar explorer Sir Ernest Shackleton, then carried it to Scotland, so he could recreate the vintage tipple for his drinks company Whyte & Mackay.

Yet banks' attempt to collect on the unpaid dues of Mr Mallya's airline will be a test for India's legal system, and its ability to provide recourse to the consortium of 14 lenders, led by the government-owned State Bank of India. It is likely to be a protracted, difficult process.

"There is no precedent for this," says one Mumbai-based banking industry analyst who asked not to be identified. "I don't recall any business so big or high profile with lenders trying to oversee an orderly shutdown like this."

Mr Kaul estimates that lenders, which took a $445m stake in Kingfisher through a debt-to-equity swap in a 2010 restructuring, have already recovered about $200m from selling pledged shares in other parts of Mr Mallya's United Breweries Holdings group earlier this year. But he says further recoveries will be far tougher.

Mr Mallya is furious at the grounding of his beloved airline, and is expected to battle the seizures of its properties every step of the way. "What were easy pickings on the table from a liquidation perspective has largely been done," Mr Kaul says. "Beyond that, it will get complex and take a long time."

In theory, Indian law permits lenders to easily foreclose on assets pledged as security against unpaid loans. Kingfisher's lenders also have so-called "personal guarantees" from Mr Mallya, which technically allows them to seize any of his personal assets against the airline's unpaid loans.

But, in practice, loan recoveries can be stalled for years, if borrowers go to court to battle against the foreclosures. India's debt recovery tribunals, established to help adjudicate such disputes - and to which Kingfisher's lenders have sought recourse - have a backlog of nearly 43,000 cases, with a combined value of nearly $24bn.

"The issue is how implementation of the law proceeds rather than the law itself," says the Mumbai-based banking analyst.

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Even when loan defaulters' assets are eventually seized, banks often find it difficult to sell them on, as prospective buyers fear subsequent litigation from former owners.

"Finding a bidder for those properties is very challenging, even for real estate assets," says the banking analyst. "Nobody really wants to get into the argument."

Creditors are also staking claims on some of the cash that Mr Mallya's United Breweries received from UK-based Diageo for the UK-listed group's acquisition of a 25 per cent stake in his drinks group, United Spirits.

The scramble for assets is an unfortunate end to an airline that was popular among Indian fliers for its attentive service, but was finally undone by the combination of an overambitious expansion, coupled with surging fuel prices, bitter fare wars and the poorly timed acquisition of debt-laden budget Deccan Air.

Kingfisher was forced to stop flying in October 2012, after engineers, who had not been paid for seven months, refused to certify aircraft as safe, a stoppage quickly joined by pilots and other cabin staff.

The carrier was grounded only weeks after New Delhi decided to allow foreign airlines to take stakes of up to 49 per cent in Indian carriers, a reform Mr Mallya long advocated so he could find a partner to invest fresh capital into his popular but financially ailing carrier.

"The foreign direct investment approval finally came too late for Kingfisher," says Mr Kaul at the Centre for Asia Pacific Aviation. "Had it come a little earlier - a year or six months earlier - there would have been a chance." Instead, as one of the carrier's executives says: "The lawyers will make a lot of money."

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