DEALING WITH AIRCRAFT REPOSSESSION / CANNIBALIZATION … · DEALING WITH AIRCRAFT REPOSSESSION /...

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DEALING WITH

AIRCRAFT

REPOSSESSION /

CANNIBALIZATION IN

INDIA: A RECENT CASE

STUDY

THEFT DEREGISTRATIO

N

PARKING

CHARGES

UNDUE

ENRICHMENT

+

INDIAN AVIATION MARKET

TRENDS

� 39 MILLION PASSENGERS

� 5 AIRLINES

� PUBLIC / PRIVATE : 3 / 2

� NUMBER OF AIRCRAFT : 225

� NUMBER OF AIRPORTS : 50

� 122 MILLION PASSENGERS

� OVER 13 AIRLINES

� PUBLIC / PRIVATE : 3 / 10

� NUMBER OF AIRCRAFT : 735

� NUMBER OF AIRPORTS : 82

YEAR 2000 YEAR 2010

+THE STORY OF A COLOURFUL BIRD

� Started operations on the 9th of May 2005

� With brand new Airbus A320 Aircraft

� Was the airline all of India was waiting for

� Good Service, Good Food, High Fares

� 99% of its fleet on lease from International Lessors


� Ordered a diverse fleet of ATRs, Airbus A319, A320, A321,

A330, A340-500 and A380-800’s (including VIP aircraft B727 &

A319 ACJ).

� 19 December 2007 : It acquired Air Deccan

� With a fleet size of 21 Airbus A320 aircraft Air Deccan was

renamed “Simplifly Deccan” then “Kingfisher Red”

� Things then started going downhill


� 2009 – 2010 is when things started getting bad.

� Lease rentals not being paid on time

� Huge outstandings owed to Airport Operators

� Huge outstandings owed to Fuel Companies

� However, expansion continued – took delivery of A330’s and

started various long haul destinations

� Still no profit


� REASONS FOR THE DOWNFALL:

� Acquisition of Air Deccan : Only to allow it to fly international

� High cost of fuel

� Exorbitant salaries

� Over ambitious business plan

� Aircraft over – ordered

� Lack of motivation from the Management – “A tool to advertise beer”

� A Richard Branson attitude but without the Richard Branson study of

market economics and business plans

� Extreme interference from the Government

+THE STORY OF 4 COLOURFUL BIRDS

� With over 70 aircraft of lease from a diverse arena of aircraft

lessors

� Paying lease rentals began to be a problem

� From 2009 to 2011 – various default notices were sent to

Kingfisher

� No satisfactory reply only empty promises

� Lease rentals were being paid many months after they fell due


� We were engaged by the lessor in 2011

� A total of 4 aircraft of lease – 2 A320’s and 2 A321’s

� Average age – 5 years

� Lease of 2 aircraft were ending shortly while other two still had

about 5 years of lease period remaining

� Multiple requests sent to inspect the aircraft and for payment of

lease rentals fell on deaf ears

� Things then got serious


� The work began to remove those 4 aircraft from India

� On inspection the lessor was shocked to find:

� 2 aircraft were barely airworthy

� 2 aircraft were completely cannibalized

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THE STORY OF 4 COLOURFUL

BIRDS

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NEXT STEPS

� TWO DISTINCT CATEGORIES : CANNIBALIZED VS.

AIRWORTHY

� AIR WORTHY AIRCRAFT:

� Immediately flown out of India and de-registered

� Aircraft removed by Kingfisher itself

� Both aircraft removed in 2012

� Both aircraft are already on lease to another operator in another part

of the world

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NEXT STEPS: PRE OCTOBER

2012

� CANNIBALIZED AIRCRAFT (Pre October 2012):

� SOURCING OF PARTS BEGAN

� (1) Search for Parts in Kingfisher Warehouses

� (2) Direct Import of Parts from Overseas

� SEARCH FOR PARTS:

� Problem: Hundreds of man hours consumed in searching

for parts by way of serial number

� Hundreds of parts found / refurbished and re-installed

� IMPORT OF PARTS:

� Parts were imported duty free

� Problem: Lien exercised by importer for unpaid dues

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NEXT STEPS: POST OCTOBER

2012

� IN OCTOBER 2012, THE A.O.C. OF KINGFISHER WAS

SUSPENDED

� PROBLEMS:

� Import of Parts became a problem

� Customs Authorities unsure where spares to be allowed duty free

� Confusion over “Suspension” vis-à-vis “Cancellation”

� Customs Authorities became bi-polar – certain shipments allowed,

certain detained and then later released

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NEXT STEPS: POST 31

DECEMBER 2012

� ON DECEMBER 31, 2012 KINGFISHER LOST IT’S A.O.C.

� PROBLEM:

� Customs Authorities completely stopped clearing shipments

� Shipments which were dispatched before cancellation also

detained

� Still remain detained at various Customs entry points

� Repair work almost at a stand-still

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ISSUE OF DE-REGISTRATION

� All Kingfisher leases were pre – Cape Town Convention

� India ratified the Cape Town Convention in July 2008

� AIRWORTHY AIRCRAFT:

� Flown out of India with no problem

� De-registration requests by both Lessor and Lessee honoured by

the DGCA

� CANNIBALIZED AIRCRAFT:

� Still stuck on the ground

� Number of aircraft lessors removed their aircraft

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� Government Authorities (AAI, Fuel Co’s, etc) realized that they

had huge outstandings pending from Kingfisher

� Initial reaction was to dis-allow de-registration of aircraft

� At this point we moved aircraft to Air India hangars

� No de-registration, to explore any hopes of spares imported

duty free

� Other Lessors faced the heat

� Despite termination of lease agreements – DGCA did not

honour de-registration

� Certain cases were contested by Kingfisher

� Airports Authority of India set an unofficial rate for removal

� 10 crores for A320 and 5 crore for ATR’s

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� DVB CASE

� DVB flew 2 aircraft out of India to Istanbul, Turkey

� Requested DGCA to de-register the aircraft

� Kingfisher refused to give consent

� DGCA refused to de-register the aircraft

� DVB publicly declared that “No more business in India”

� DVB filed a writ petition in the High Court of New Delhi

� High Court of New Delhi held that refusal to de-registration is

illegal and cannot be sustained

� Directed DGCA to de-register the two aircraft

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� DGCA began de-registering

� We de-registered our 2 aircraft in February 2013

� New Problem: Airport Operators refused to let aircraft fly until

dues paid

� ILFC CASE

� ILFC approached High Court of New Delhi challenging charging of

parking / other charges from Lessors

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� MEETING OF 26 MARCH 2013

� High level meeting to discuss de-registered aircraft not being

allowed to fly

� HELD:

� No legal basis

� DGCA to seek views of Airport Operators before de-reg

� List of remaining KF aircraft to be prepared

� Airport Operators to release all aircraft immediately

� Parking charges leviable only from date of de-registration

� Decision sent for “compliance” to AAI and Others

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� ILFC CASE

� High Court of New Delhi declared 26 March 2013 to be an “order”

� Having force of law

� Airport Operators directed to provide statement of accounts

� And also directed compliance of the “order”

� Took a strong view and imposed costs on the AAI

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IS THE FUTURE BRIGHTER?

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YES!

� Cape Town Convention is in force

� Likely to be incorporated into local law

� AWG is closely monitoring the situation with lawyers in India

� DGCA is now experienced with the issues

� Airlines are taking an active role to talk to Lessors and the

Government to find a consensus

� Government is appointing an EU based consultancy service to

advise it on drafting “rules” re: repossession

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HOW LAWYERS BENEFIT

For further information:

Email: [email protected]

www.sarinlaw.com

Photographs Courtesy: Nitin Sarin & Saurabh Monga

DEALING WITH AIRCRAFT REPOSSESSION / CANNIBALIZATION … · DEALING WITH AIRCRAFT REPOSSESSION /...

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