NCLT orders insolvency process at low-cost carrier Air Costa

The bankruptcy court has ordered corporate insolvency resolution process for the grounded South Indian low-cost air carrier, Air Costa, owned by the Vijayawada-based Lingamaneni family’s LEPL Projects.

Air Costa is the second Indian airline, after Jet Airways, to undergo court-monitored debt resolution process under the Insolvency and Bankruptcy Code.

Aviation regulator Director General of Civil Aviation had in June 2017 suspended the flying licence of the airline, making it officially wind up operations.

The Amaravati bench of the National Company Law Tribunal (NCLT) appointed MS Mano Ranjani as the interim resolution professional for the airline, responding to a petition by German aircraft maintenance firm MTU Maintenance Berlin-Brandenburg GmbH (MTU-Berlin) as an operational creditor.

The German firm said the low-cost air carrier didn’t make the required payments for the lease of aircraft engines and also defaulted on payments under maintenance agreements.

On Monday evening, Air Costa promoter Ramesh Lingamaneni said in a statement that LEPL was solvent with strong fundamentals. The airline has also accused the German company in the NCLT of supplying defective engines, that too with a delay, causing it losses. It also challenged other claims of the operational creditor.

MTU-Berlin said Air Costa had in November 2014 entered into an aircraft engine lease agreement with its associate MTU Maintenance Lease Services, Netherlands. It had entered also into a separate agreement with MTU-Berlin for engine maintenance, repair and overhaul (MRO) services and another MRO pact with MTU Maintenance Canada.

In September 2016, the Indian company signed a settlement agreement with MTU-Canada for consolidation and settlement of dues, then totalling around $1.99 million, it claimed.

MTU-Berlin has submitted to the NCLT bench, headed by Justice Mohammed Ajmal, that though Air Costa claimed transferring $0.5 million, it didn’t receive any amount. The carrier also failed to pay instalments thereafter despite repeated reminders, it alleged. MTU-Canada then moved a London court, which in March 2017 directed Air Costa to pay $2.46 million with an interest of $95,635, it said.

Air Costa disputed the contents of MTU-Berlin’s demand notice and the dues. Following this, the German firm moved the NCLT, seeking corporate insolvency resolution process.

Air Costa argued that the MTU entities failed to supply the leased engine in time that caused severe losses to it, including loss of bookings and grounding of aircraft. The engine, delivered late, also had oil leakages beyond permissible limit and developed technical snags, it claimed. Disputing the validity of the settlement agreement, Air Costa said it was coerced to enter into unreasonable settlement agreement, which should be treated null and void. It also argued that the London court’s orders were not maintainable since they were passed ex parte.

The NCLT bench observed that Air Costa did not raise the issue of deficiency in services nor the delayed delivery of engine while entering into settlement agreement with the MTU entities and agreed to pay the dues quantified. Refusing to go into the validity or otherwise of the settlement agreement, the tribunal observed also that Air Costa didn’t question the settlement agreement in any appropriate forum till it received the legal notice from MTU entities in July 2017.