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

+ INDIAN AVIATION MARKET TRENDS YEAR 2000 YEAR 2010 39 MILLION PASSENGERS 122 MILLION PASSENGERS 5 AIRLINES PUBLIC / PRIVATE : 3 / 2 NUMBER OF AIRCRAFT : 225 NUMBER OF AIRPORTS : 50 OVER 13 AIRLINES PUBLIC / PRIVATE : 3 / 10 NUMBER OF AIRCRAFT : 735 NUMBER OF AIRPORTS : 82

+ THE STORY OF A COLOURFUL BIRD Started operations on the 9 th 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

+ 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

+ 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

+ 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

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