Kingfisher Airlines under CBI lens over aircraft lease loans
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Kingfisher Airlines under CBI lens over aircraft lease loans
Vijay Mallya’s grounded Kingfisher Airlines is facing fresh trouble with the Central Bureau of Investigation’s needle of suspicion turning towards it for allegedly misusing the aircraft sale and lease-back model to siphon off bank funds of around R2,200 crore.
Aircraft sale and lease-back model is common among airlines, wherein they buy aircraft, sell them to leasing firms and hire them back on lease. The CBI, on the basis of tip-offs from banks, suspects that Kingfisher obtained loans for the leasing amount on inflated quotations from dummy leasing firms, which were ostensibly floated by it. These firms, in turn, had hired planes from actual leasing companies at lower rates. This way, Kingfisher pocketed the difference between the actual leasing rate and the inflated amount.
A Kingfisher Airlines spokesperson denied the allegations, while a CBI official said no details can be divulged as the matter is under investigation. “The CBI is examining loans to Kingfisher Airlines in respect of one public sector bank. Since examination is at a nascent stage, details can’t be divulged,” the official told FE.
The investigation is part of CBI’s scrutiny of the top 30 cases of non-performing assets of the entire banking system in the country, including the ones involving Kingfisher Airlines, Deccan Chronicle and Sterling Biotech.
“We found that the quotation (for the lease) by Kingfisher Airlines was always higher than the other airlines. This is how we found that the airline was producing the quotation given by a shell company to swallow funds,” said an official with a public sector bank, which is one of the lenders to Kingfisher.
At its peak, Kingfisher Airlines was operating 66 aircraft but owned only three. While it had renowned lessors such as International Lease Finance Corporation, an arm of AIG and German bank DVB, a large number of its planes were leased from smaller firms in Cayman Islands.
The CBI and the banks suspect that these firms were floated by Kingfisher for pocketing the surplus loan amount.
As on date, out of the 12 aircraft of Kingfisher Airlines still in the country, nine are owned by Cayman Islands-based lessors and three are owned directly by Kingfisher Airlines. KF Turbo Leasing owns six such planes, while CJ Leasing (Cayman) owns one and TP Leasing (Cayman) owns two. Interestingly, CJ Leasing (Cayman) and TP Leasing are registered with the same address in the Cayman Islands.
During 2009-10 and 2010-11, Kingfisher paid the highest aircraft lease rentals in the country. Their annual lease rental expense during 2009-10 was Rs 1,093.81 crore while in 2010-11 it was Rs 983.9 crore. In 2011-12 Kingfisher’s annual lease rental expenses of Rs 1,058.45 was second only to Jet Airways, which paid Rs 1,204.99 crore. The Vijay Mallya-owned airline only reduced its lease rentals in 2012-13 as it returned a large number of aircraft to lessors after being grounded.
Apart from the Kingfisher Airlines aircraft, CJ Leasing (Cayman) also owns the private jet of Vijay Mallya. Last year, Mallya entered into a sale-and-lease-back agreement for his private jet with CJ Leasing (Cayman), a person in the know of the development said.
An SBI-led consortium of 17 lenders, to whom Kingfisher Airlines owes around Rs 7,000 crore, is working to identify the assets of the company and its promoter. SBI has already sent a wilful default notice to Kingfisher Airlines, which has to reply within 60 days. SBI did not respond to email sent by FE on the issue.
Typically, average monthly rental for an Airbus A320 or a Boeing 737 aircraft is $750,000 to $1 million depending on the deal negotiated between the lessor and the airline. Out of 343 planes of scheduled passenger carriers in the country, 212 planes are being operated on lease.
Kingfisher Airlines under CBI lens over aircraft lease loans
Aircraft sale and lease-back model is common among airlines, wherein they buy aircraft, sell them to leasing firms and hire them back on lease. The CBI, on the basis of tip-offs from banks, suspects that Kingfisher obtained loans for the leasing amount on inflated quotations from dummy leasing firms, which were ostensibly floated by it. These firms, in turn, had hired planes from actual leasing companies at lower rates. This way, Kingfisher pocketed the difference between the actual leasing rate and the inflated amount.
A Kingfisher Airlines spokesperson denied the allegations, while a CBI official said no details can be divulged as the matter is under investigation. “The CBI is examining loans to Kingfisher Airlines in respect of one public sector bank. Since examination is at a nascent stage, details can’t be divulged,” the official told FE.
The investigation is part of CBI’s scrutiny of the top 30 cases of non-performing assets of the entire banking system in the country, including the ones involving Kingfisher Airlines, Deccan Chronicle and Sterling Biotech.
“We found that the quotation (for the lease) by Kingfisher Airlines was always higher than the other airlines. This is how we found that the airline was producing the quotation given by a shell company to swallow funds,” said an official with a public sector bank, which is one of the lenders to Kingfisher.
At its peak, Kingfisher Airlines was operating 66 aircraft but owned only three. While it had renowned lessors such as International Lease Finance Corporation, an arm of AIG and German bank DVB, a large number of its planes were leased from smaller firms in Cayman Islands.
The CBI and the banks suspect that these firms were floated by Kingfisher for pocketing the surplus loan amount.
As on date, out of the 12 aircraft of Kingfisher Airlines still in the country, nine are owned by Cayman Islands-based lessors and three are owned directly by Kingfisher Airlines. KF Turbo Leasing owns six such planes, while CJ Leasing (Cayman) owns one and TP Leasing (Cayman) owns two. Interestingly, CJ Leasing (Cayman) and TP Leasing are registered with the same address in the Cayman Islands.
During 2009-10 and 2010-11, Kingfisher paid the highest aircraft lease rentals in the country. Their annual lease rental expense during 2009-10 was Rs 1,093.81 crore while in 2010-11 it was Rs 983.9 crore. In 2011-12 Kingfisher’s annual lease rental expenses of Rs 1,058.45 was second only to Jet Airways, which paid Rs 1,204.99 crore. The Vijay Mallya-owned airline only reduced its lease rentals in 2012-13 as it returned a large number of aircraft to lessors after being grounded.
Apart from the Kingfisher Airlines aircraft, CJ Leasing (Cayman) also owns the private jet of Vijay Mallya. Last year, Mallya entered into a sale-and-lease-back agreement for his private jet with CJ Leasing (Cayman), a person in the know of the development said.
An SBI-led consortium of 17 lenders, to whom Kingfisher Airlines owes around Rs 7,000 crore, is working to identify the assets of the company and its promoter. SBI has already sent a wilful default notice to Kingfisher Airlines, which has to reply within 60 days. SBI did not respond to email sent by FE on the issue.
Typically, average monthly rental for an Airbus A320 or a Boeing 737 aircraft is $750,000 to $1 million depending on the deal negotiated between the lessor and the airline. Out of 343 planes of scheduled passenger carriers in the country, 212 planes are being operated on lease.
Kingfisher Airlines under CBI lens over aircraft lease loans
