+ DEALING WITH AIRCRAFT REPOSSESSION / CANNIBALIZATION IN INDIA: A RECENT CASE STUDY THEFT DEREGISTRATIO N PARKING CHARGES UNDUE ENRICHMENT
+
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
+THE STORY OF A COLOURFUL BIRD
� 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
+THE STORY OF A COLOURFUL BIRD
� 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
+THE STORY OF A COLOURFUL BIRD
� 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
+THE STORY OF 4 COLOURFUL BIRDS
� 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 STORY OF 4 COLOURFUL BIRDS
� 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
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+
THE STORY OF 4 COLOURFUL
BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+THE STORY OF 4 COLOURFUL BIRDS
+
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
+
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
+
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
+
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
+
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
+
ISSUE OF DE-REGISTRATION
� 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
+
ISSUE OF DE-REGISTRATION
� 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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ISSUE OF DE-REGISTRATION
� 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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ISSUE OF DE-REGISTRATION
� 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
+
ISSUE OF DE-REGISTRATION
� 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
+
IS THE FUTURE BRIGHTER?
+
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
+
HOW LAWYERS BENEFIT
+
HOW LAWYERS BENEFIT
For further information:
Email: [email protected]
www.sarinlaw.com
Photographs Courtesy: Nitin Sarin & Saurabh Monga