But behind closed doors, Modiluft is preparing for its umpteenth relaunch. On the positive side, Modi has tied up with Speedwings, a management consultancy firm wholly owned by British Airways. Speedwings has already flown in its staff and is busy filling up Modilufts empty organisational charts. The British firm, credited with turning around Kenyan Airways, has now virtually taken command of operations at Modiluft with the appointment of four directors on the companys board. Moreover, Modi has got a Foreign Investment Promotion Board (FIPB) approval for a $50 million (Rs 200 crore) preference share issue.
On the negative side? Its difficult to decide where to start, but heres a short list nonetheless: Modiluft has no aircraft and no operational staff, it is fighting off a long line of creditors, and it has huge damage settlements to make with its erstwhile partners. Modi has to pay Lufthansa Rs 1.5 crore next year as damages and Rs 15 crore in six equal quarterly instalments by the year 2000.
While the FIPB decision is a shot in the arm for Modi, he will have to start from scratch in building his airline, says Wing Commander B S Singhdeo, advisor to Assured Airways Limited, a helicopter taxi service. Under the terms of an out-of-court settlement with Lufthansa, Modiluft had to return all three Boeings it operated to the German carrier. Having burnt their fingers, foreign companies now prefer to sell aircraft to Indian companies. Finding a lessor this time around will be very tough, says Singhdeo.
Air UK also had a bitter experience with Modiluft. According to the foreign company, Modiluft had leased three Boeing 737-400 aircraft from it on the understanding that these would be bought over by the Indian company after a year. Modiluft today hotly denies the existence of such an agreement. This week, the battle between Modiluft and Air UK intensified with the British company lodging a criminal complaint accusing Modiluft of misappropriating inland air travel tax (IATT) collected from passengers, but not paid to the government, amounting to Rs 30 crore. Air UK also claims that Modiluft has not made good either on the rental lease, to the tune of $6 million, or the maintenance fees.
Beleaguered Modilufts lawyers, meanwhile, are in the attack mode. They have filed a suit in the Bombay High Court for the recovery of Rs 168 crore as damages from Air UK Leasing Company for supplying aircraft with defective engines. We have suffered tremendous losses because Air UK gave us dud machines. We packed up because of them, says a Modiluft official. Their FIR against us is nothing but a way of getting back at us. It is the simplest way of trying to sabotage the companys relaunch plans.
Air UK is hardly the only obstacle in Modilufts flightpath. Most of Modilufts 500-strong staff has deserted the airline (or worse, is suing it for non-payment of salaries) as it has remained grounded for over a year now. It has to clear outstanding debts before it can take to the skies, says a senior official at the Directorate-General of Civil Aviation. Pending salaries and individual payments run into lakhs, says Gopal Jha, a former ground staffer at Modiluft.
Modis troubles with his creditors are also far from over. He owes Indian Oil Corporation Rs 11.3 crore, Daewoo Motors India Ltd Rs 4 crore, US-based Strongfield Aviation approximately Rs 40 lakh and Dublin-based PARC Aviation Limited roughly Rs 30 lakh. He also owes over Rs 10 lakh each to SMD Travel Corporation, Thomson Press, Atash Industries and Beltek Canadian Water. Some say the list of small creditors runs into hundreds. Modiluft tried to appease creditors who have outstandings of above Rs 10 lakh by sending them an elaborate seven-page scheme of settlement and compromise. But their terms are preposterous, says PARC Aviation Limiteds advocates.
Can you imagine accepting travel vouchers for three years to fly on Modiluft, an airline that doesnt even exist? Does Modi really think we are going to accept vouchers instead of money, asks Captain Satish Sharma, one of the creditors. A battery of legal-eagles and creditors will be baying for Modilufts blood on 12 January 1998, the day of the hearing in the Delhi High Court.
Protracted legal battles are nothing compared to the problems Modi will face next month in drumming up support for his roadshow in Europe and the Middle East. Modis task is uphill given the fact that the Rs 200 crore issue cannot be offered to any foreign airline in keeping with the Indian aviation policy. The preference shares reportedly have a face value of Rs 100 and a coupon rate of 14 per cent. An equity conversion option would be available at the end of three years. The conversion price is pegged at Rs 10 per equity share (current market price: Rs 8) and there is a redemption option at Rs 100 at the end of five years along with a cumulative dividend. The issue is bound to be undersubscribed. There is very low investor confidence, says Ashok Kwatra, managing director, Real-value Investments, a stock-broking firm.
Meanwhile, UK-based merchant bankers Seamico Marlin Securities are preparing the financial revival package. The airline is believed to have raised intercorporate deposits (ICDs) worth Rs 20 crore from various companies, which include Rs 5 crore from Reliance Industries and another Rs 5 crore from hotel chain Leela groups financial arm Leela Capital & Finance Ltd.
Proceeds from the preferential issue will fund Modilufts aircraft acquisition. The money will also be used to retire existing high-cost debt, clear past liabilities and provide working capital for the reinstated airline, says a Modiluft spokesman. Speedwings has put together a five-year business plan according to which Modiluft will take on dry lease three Boeing 737 400 aircraft. Over three years, the airline wants to increase its fleet to 12 aircraft.
With the FIPB clearance, life is returning to the Modiluft counter on the bourses. At Rs 8 per share, there is little downside to the scrip. Considering that FIIs had bought the shares at Rs 80, the upside can be rather handsome, says an analyst with Arjun Kapur & Co.
However, the real question remains whether Modiluft will take off at all. With all its net assets wiped out, Modiluft is likely to be in a cash crunch even after the capital float. Without any return on investment, it will have to invest at lest Rs 200 crore every year to keep afloat, says Singhdeo. The airline must have a long-term (10 year) strategy to survive. In the initial stages, the margins are wafer-thin in the airline business, adds Pravir Das, senior advisor, civil aviation, Confederation of Indian Industry.
S K Modi is trying to fly again despite having fallen flat on his face repeatedly
Lack of funds has already brought down two private airline operators Damania and East West. But Modi just refuses to say die. - Uttara Choudhury
