The suspension  of Kingfisher Airlines, despite its crippling financial problems, is baffling as civil aviation rules clearly empower the regulator to act against a defaulting airline, unable to pay salaries.

Airline faced a big disaster last year after a cut-throat industry price war squeezed its cash flow, forcing it to suspend a majority of its flights and nearly halt operations.

From November last year, the company has paid monthly salaries to employees only in fits and starts and has been forced to drastically reduce its operations. It has defaulted on loans, forcing many banks to classify it as a non performing asset (NPA). 

The civil aviation ministry has, so far, refused to shut down the airline, saying that Kingfisher still continues to operate the required minimum number of aircraft. The ministry has also begun moves to reduce rules that mandate the regulator to take into account an airline's financial health and status before renewing its licence.

Former Director General of Civil Aviation (DGCA) Bharat Bhushan, included financial status and health as one of the parameters that the regulator must take into account when renewing a licence. The rules are referred to in government parlance as civil aviation requirement (CAR). 

"The issue has to be seen in two stages, the first would involve a constant monitoring of any airline that is going through a financial crisis from close quarters and having found any evidence of the same in the second stage the regulators need to take action as the mandate that they have is to ensure safety on all costs," said Peeyush Naidu, director, Infrastructure Consulting, Deloitte. The CAR clearly says that the air operator's permit is dependant upon a number of things, including financial status and health. "Further expansion of fleet and operations, including Air Operator's Permit, shall be subject to mitigation of the potential risk factors identified during the financial survey by the operator to the satisfaction of the DGCA,"

The Civil Aviation Regulatory points out that the factors will be included in the assessment include issues pertaining to significant lay offs/turnover of personnel, delays in meeting payroll, decreased standards of training, a reason to believe reduction of safe operating standards or evidence of cutting corners, demand for 'cash and delivery' by suppliers who formerly granted the operator credit, shortage of supply of spares and sale and repossessions of aircraft and other equipment.

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