Vijay Mallya's Kingfisher Airlines Set to Lose Flying Licence on 31 December

Vijay Mallya, the 'King of Good Times', could be entering 2015 facing a double whammy of sorts.

The liquor baron's grounded airline – Kingfisher Airlines – is all set to lose its Air Operator Permit this week, as the two-year window to renew the permit expires on 31 December 2014.

The full service airline lost its flying permit two years ago for failing to come up with a viable plan to revive itself after its operations were grounded in October 2012.

Simultaneously, state-run lender United Bank of India (UBI) has decided to appeal against a court order last week that dismissed its decision to declare Kingfisher Airlines "wilful defaulter" on technical grounds. The airline owes about ₹350 crore to the bank. 

Wilful Defaulter Case 

UBI had its decision overturned by the Calcutta High Court over a technicality of its empowered committee consisting of four members, instead of the Reserve Bank of India mandated three members.

The bank has said that it will reconstitute its empowered committee with three members and initiate steps to declare Kingfisher Airlines "wilful defaulter" again, within a fortnight.

Kingfisher Airlines reportedly has an outstanding in excess of 7,000 crore to a slew of lenders, including UBI. 

Investigations into the loans raised show that the grounded airline had violated norms governing the raising and use of bank loans, reported FirstPost.

A "wilful defaulter" is a borrower who avoids repaying money owed to banks, despite the ability to do so.

With a company being classified as a "wilful defaulter", the promoters and directors of the company cannot rise fresh capital from any financial institution, nor can they start a new business for a stipulated period of time.

The RBI under Raghuram Rajan is keen on eliminating crony capitalism and has come down heavily on promoters and managements who willingly avoid repaying loans, by seeking legal recourse, if only to delay proceedings.

Other banks are set to join UBI in declaring Kingfisher Airlines "wilful defaulter", resting their hopes on the Calcutta High Court case.

Kingfisher Airlines Set To Lose Air Operator Permit 

In another development, the two-year term extended to Kingfisher Airlines to renew its Air Operator Permit (AOP) is set to run out on 31 December 2014 midnight.

The airline grounded since October 2012, lost its flying licence on 31 December 2012 when aviation regulator Directorate General of Civil Aviation refused to renew the licence over the company's inability to provide a satisfactory plan to continue operations.

However, the airline managed to receive a two-year window to get its licence renewed.

If the AOP expires, the airline will have to apply afresh for flying permit to resume operations, said a senior official with the DGCA.

The AOP would mandate a number of regulatory approvals from the DGCA, a no-objection certificate from various ministries, including civil aviation, security clearances for the top brass of the proposed airline from the home ministry and suggestions and comments from other stakeholders, read FirstPost.

The beleaguered airline still has about 2,000 employees on its payroll, including former staff members, some of whom have not been paid salaries since September 2012. 

RBI Stand on Bad Debts

RBI Governor Raghuram Rajan has made the reduction and management of bad debts of state-run banks a priority and has introduced a set of measures that make it hard for companies to borrow if their have a bad record in loan repayment. 

Rajan's move is aimed at managing the capital requirements of the banks better. A high level of bad debts sitting on the books of banks forces a higher allocation of capital and reserves, resulting in funds – that could have been more efficiently put to use – being diverted to subsidise the debts of a chosen few (defaulters) with political connections.  

The recent developments are bound to inflict a blow to Mallya, India's flamboyant business tycoon. Having sold his controlling stake in the beer and the alcohol business to leading Western majors, Mallya has seen his control and financial manoeuvrability diminish in the recent past. He was also ousted from the board of another group  company Mangalore Chemicals & Fertilizers early this month. 

Kingfisher Airlines is a textbook case in corporate mismanagement and a lesson for those overambitious Indian industrialists who enter a domain they least understand.