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XiningAirlines vBlauflugAirlines

1. Xining Airlines Ltd. was promoted by the media magnet Ms Barbera Kean, incorporated in the State ofArkham.
2. The company spent huge sums of money on the Civil Aviation Minister, Mr. Oswald Cobblepot of theState of Arkham, a South Asian Republic, and managed to get the major trunk routes that initially onlybelongedtoState-ownedprofit making AirArkham.
3. Xining Airlines, in a short span of one year, cornered 40% of the domestic market share and 12% of theinternational market.
4. Xining took on lease, 60 state of the art Airbuses and placed orders for 50 Boeing A380s. Xining Airlinesbecamepopular as it notonlyprovided in-flight entertainment but also servedliquor.
5. ItwasrumouredthatMsKeanhadpaidabribeof100,000ArkhamDollarsperroutetotheCivilAviationMinister,Mr.CobblepotresultinginXiningAirlinestakingoverroutesexclusivelyrunbyArkhamAirlines
6. TheAntiCorruptionBenchoftheFederalSupremeCourtofArkham,pursuanttopublicinterestlitigationbeforeit,orderedthecommissioningofacommitteetoinvestigateintotheaffairsofArkhamAirlines.ThecommitteesubmittedareportaccusingKatyChenofXiningAirlinesandthethenCivilAviationMinister,Mr.Cobblepot,ofcorruptpracticesandthecasefortheirarrestissubjudice.Thegovernmentcancelledthepermitsof someof themajor trunk routes that were run by Xining Airlines.
7. Meanwhile, Xining Airlines had introduced the concept of low cost dynamic airfare, where 30% of theseats were booked online under a lottery scheme for as low as $10 and tickets were booked in variousroutes,including trunk routes, oneyear in advance.
8. Xining Airlines had mobilized 60 million Arkham Dollars by way of such schemes and the money wasusedas advanceto purchaseaircrafts.
9. XiningAirlines,inordertopopularizeitsimage,hadboughtPjanicattheDisco,thebestEuropeanFootballClub, for a fancy price and was also sponsoring various events. The cancellation of the routes resulted incompulsory refund of the money to the passengers who had booked tickets in advance in the major trunkrouteswhichmadeXiningAirlinescashstrapped.Itwasunabletoservicetheleaserentalsofaircraftsandhad to put on hold the instalments that needed to be paid as advance for acquisition of new Boeing andAirbusaircrafts.
10. MsKeanfeltthatlaying-offemployeeswouldresultinadversepublicityandkeptonroll2000employees,however,shewas not ableto pay their salaries ontime.
11. Ms Kean contacted Ms Tabitha Galavan, a friend of hers who is the owner of Blauflug Fund Inc. and alsotheownerofBlauflugAirlinesforabailout.MsGalavanisveryclosetoMsKean,asMsKeanhelpedherlaunch the enterprise. Nonetheless, Ms Galavan got a financial and legal due diligence done and the teamprojectedthefollowing picture.
    1. The financial due diligence of Xining projected a very bleak picture with the historical earnings of XiningAirlinesshowinglackofconsistencyandsustainabilityandeventhefuturefinancialearningsdidnotlookverypromising.
12. The legal due diligence also had a significant message. Xining Airlines was at the threshold of severalcourts and tribunals and it was only a matter of time till it would have to defend itself in Winding-upProceedings,consumerdisputesonaccountofcancellingpre-bookedtickets,proceedingsbeforethelabourauthoritiesforhavingdefaultedincontributingtoEmployeesProvidentFundandothersimilarcontributions,etc.

1. One more important aspect that the lawyers of Blauflug had to contend with was that the FDI laws ofArkham do not make it completely easy for Blauflug, being a foreign corporation, to acquire more than49%of thestakeof Xining without going through theGovernment Approvalroute
2. Nonetheless, Ms. Kean is keen to get this agreement on the table - she is fiercely protective of her imageand a woman of her word - she doesn't wish to layoff any employees, given. Further these employees hadan offer from Eagle Airways (unbeknownst to Ms. Galavan), who were fierce rivals of Xining. Some oftheseemployeeswhoaredeemedsupposedlyunnecessaryarethosewhodesignedthein-flightentertainmentsystem,whichhasremainedakey contributingfactortothecompany'ssuccessandKeanisreluctanttoletthemgo.ShewouldalsoliketobelievethatmostemployeesthemselveswishedtocontinuewithXiningitself,astheyunderstoodthatXiningstoodoutbecauseofitsin-flightservices.Reductionandgradualincreaseoftheirsalariesinaphasedmanner,wasapossibilityshewaswillingtootherwisediscuss,trusting her capability to reach out to her employees. She is also exploring the option of floating a VRS(Voluntary Retirement System) plan, as a possibility to reduce costs in the event of a possible exit ofemployeesin a manner which would not result in badfaith.
3. The amount required by Xining Airlines under the "bail-out" deal is to the tune of A$450 Millioncomprising money for settlement of EPF penalties, A$200 towards the payment of creditors to ensure thatno Winding up proceedings are commenced against Xining Airlines, as the financial valuation of XiningisonlyA$300million;paymentsonaircrafts;initialpaymentofoutstandingsalariesuntilaninterimphasedactionplanisputinplay;forrefundstoonlinelowcostdynamicairfareschemeforcustomers';otherMisccosts[dues to oil corps.,airport charges, etc.]
4. Ms Galavan on the other hand, has made up her mind clearly, and wishes to be guided in the negotiationbythe following two points (not divulged to MsKean)-
   1. one,that the refundofthelow-cost fares to thepublicmust bemadeand theissuesettled and
   2. two,thattheyhadstrongplansoflayingoff600employees-300inthenextquarterandanother300inthesubsequentquarterandfurtherreducethesalariesofotheremployeesuntiltheAirlinesbecomesfinanciallystable.Ms.GalavanisalsointerestedtolearnmoreabouttheentertainmentsystemofXiningAirlinesasithasbeen very popular with flyers.

TheDueDiligencereportprojectedthatXiningiscurrentlyvaluedatonlyA$300millionanditsdebtsandpenalties add upto A$200 Million Dollars. Further, Ms Galavan is hopeful that the EPF defaults can bemade to go away with the payment of a penalty amounting to an additional A$50 Million, and the morepressing concern is that of the aircrafts - both the leased aircrafts as well as those under the purchaseagreementswhich wouldrequire afurtherpayment ofA$40 Million asacapacitation fee.

[A$390milliontotalagreementupperlimit]

Nonetheless,MsGalavan'scontinuingconcerniswiththeformalitiesassociatedwiththebail-outarrangement-whileMsGalavanisopento goingall-outinhelpingher friend'scompanyoutofaspot, thewhole"seeking governmentapproval" iskeepingher waryofattemptinganything too drastic.

MsKeanandMs.Galavanaremeetingfornegotiationsalongwiththeircompanycounseltodiscussnextsteps.

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