The termination of Lufthansa's technical agreement with ModiLuft is a severe body blow to the cash-strapped Indian independent but does not spell the end of the German carrier's involvement in the subcontinent.
The decision in late May to terminate the relationship with ModiLuft is a result of the Indian operator's failure to meet its financial obligations, says Lufthansa, but comes as no big surprise. Throughout the three-year relationship the German flag carrier has consistently complained about chairman S K Modi's erratic payment schedule.
The German carrier had already pulled two senior management secondees out at the end of last year, after only six months of a wider management contract. Now the technical support has gone and Lufthansa is demanding the payment of 'several million Deutschmarks' in arrears and the return of its three B737-200s leased to ModiLuft.
Both sides appear to want to settle the dispute with as little fuss as possible. 'Our intention is not to close [Modi] down, we just wanted to tell him we have had it,' says a Lufthansa source. 'I do not want to go to court at all,' confirms Modi, but he stresses that he believes Lufthansa has no outstanding financial claims. 'The reasons for the breakup go deeper. Lufthansa was demanding certain payment schedules to be hastened which was not a good proposition to us.'
Modi claims he has paid enough over the term of the technical agreement to cover all outstanding debts and denies he is sending the international airline and financial communities the wrong message. 'I have paid US$40 million over the term of the technical agreement and I think the international community is intelligent enough to calculate what that means.'
Indeed, Modi says he is glad to get rid of the 'fuel inefficient' B737-200s and is planning to take new aircraft. He says these will help improve the bottom line - the carrier reported profits of Rs250 million (US$7 million) on revenue of Rs3 billion to 31 March 1996. ModiLuft also operates three B737-400s on lease from Air UK, but these are due to go to KLM next year. Maintenance is by FLS Aerospace, which has shown a willingness to extend that contract to any replacement aircraft, says Modi.
Despite the profit, cash-flow problems continue to haunt the carrier and one source suggests there are even 'problems with salaries.' More ominously, the split has caused ModiLuft to delay its financing plans both at home and abroad, which would have raised some $85 million. The carrier has also halted its discussions with the US Eximbank over the financing of four B737-400s.
Lufthansa will still retain a strong presence in the Indian market through its 40 per cent holding in Lufthansa Cargo India - a joint venture with the Hinduja Group.
M Odell/R Prasad
Source: Airline Business
