Bank May Repossess Two Kingfisher Planes

January 13, 2012

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Germany's DVB Bank said it may repossess two Airbus A320 aircraft from India's troubled Kingfisher Airlines if the carrier failed to meet its commitment to the lender in due time.

Cash-strapped Kingfisher, controlled by flamboyant drinks baron Vijay Mallya, is having trouble making interest payments and paying salaries.

"It is a painful situation, it requires a lot of time and work," Bertrand Grabowski, a member of the board at the bank who oversees the aviation business, told reporters in an interview on Friday.

"We have said to Vijay (Mallya) that we cannot continue like this. If we are not paid on due time we will certainly consider repossession of the aircraft," he added, while declining to comment if there is a certain deadline that the bank has set.

Last month, Indian tax officials froze several of Kingfisher's bank accounts for failure to pass on to the government the service taxes that are included in ticket prices. It has until March to pay the outstanding service tax, the Indian finance ministry said.

Grabowski said the amount of loan that DVB has extended to Kingfisher was not significant to its USD$10 billion aviation portfolio and said the carrier is the only problem that DVB has in its aviation balance sheet.

Kingfisher was not available for comment.

On the outlook for this year he said the bank might see slower new loan growth to aviation clients as the risk in the sector is likely to be higher in 2012 due to tough operating environment for airlines.

DVB is likely to extend only USD$2 billion - USD$2.5 billion of new loans this year compared to USD$3 billion in 2011, Grabowski said.