ADR Society Inductions, 2022

Round 1 – Mediation Plan Round

 JGLS ADR Society Inductions, 2022 – Mediation Plan Round

Xining Airlines v Blauflug Airlines

1. Xining Airlines Ltd. was promoted by the media magnet Ms Barbera Kean, incorporated in the State of
Arkham.
2. The company spent huge sums of money on the Civil Aviation Minister, Mr. Oswald Cobblepot of the
State of Arkham, a South Asian Republic, and managed to get the major trunk routes that initially only
belonged to State-owned profit making Air Arkham.
3. Xining Airlines, in a short span of one year, cornered 40% of the domestic market share and 12% of the
international market.
4. Xining took on lease, 60 state of the art Airbuses and placed orders for 50 Boeing A380s. Xining Airlines
became popular as it not only provided in-flight entertainment but also served liquor.
5. It was rumoured that Ms Kean had paid a bribe of 100,000 Arkham Dollars per route to the Civil Aviation
Minister, Mr. Cobblepot resulting in Xining Airlines taking over routes exclusively run by Arkham Airlines
6. The Anti Corruption Bench of the Federal Supreme Court of Arkham, pursuant to public interest litigation
before it, ordered the commissioning of a committee to investigate into the affairs of Arkham Airlines. The
committee submitted a report accusing Katy Chen of Xining Airlines and the then Civil Aviation Minister,
Mr.Cobblepot, of corrupt practices and the case for their arrest is sub judice. The government cancelled the
permits of some of the major trunk routes that were run by Xining Airlines.
7. Meanwhile, Xining Airlines had introduced the concept of low cost dynamic airfare, where 30% of the
seats were booked online under a lottery scheme for as low as $10 and tickets were booked in various
routes, including trunk routes, one year in advance.
8. Xining Airlines had mobilized 60 million Arkham Dollars by way of such schemes and the money was
used as advance to purchase aircrafts.
9. Xining Airlines, in order to popularize its image, had bought Pjanic at the Disco, the best European Football
Club, for a fancy price and was also sponsoring various events. The cancellation of the routes resulted in
compulsory refund of the money to the passengers who had booked tickets in advance in the major trunk
routes which made Xining Airlines cash strapped. It was unable to service the lease rentals of aircrafts and
had to put on hold the instalments that needed to be paid as advance for acquisition of new Boeing and
Airbus aircrafts.
10. Ms Kean felt that laying-off employees would result in adverse publicity and kept on roll 2000 employees,
however, she was not able to pay their salaries on time.
11. Ms Kean contacted Ms Tabitha Galavan, a friend of hers who is the owner of Blauflug Fund Inc. and also
the owner of Blauflug Airlines for a bail out. Ms Galavan is very close to Ms Kean, as Ms Kean helped her
launch the enterprise. Nonetheless, Ms Galavan got a financial and legal due diligence done and the team
projected the following picture.
a. The financial due diligence of Xining projected a very bleak picture with the historical earnings of Xining
Airlines showing lack of consistency and sustainability and even the future financial earnings did not look
very promising.
14. The legal due diligence also had a significant message. Xining Airlines was at the threshold of several
courts and tribunals and it was only a matter of time till it would have to defend itself in Winding-up
Proceedings, consumer disputes on account of cancelling pre-booked tickets, proceedings before the labour
authorities for having defaulted in contributing to Employees Provident Fund and other similar
contributions, etc.

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[Original Problem drafted by Sanjay Krishna. Adapted and modified by Aakanksha Kumar. Copyright vests in ADR Society, JGLS]
 JGLS ADR Society Inductions, 2022 – Mediation Plan Round

15. One more important aspect that the lawyers of Blauflug had to contend with was that the FDI laws of
Arkham do not make it completely easy for Blauflug, being a foreign corporation, to acquire more than
49% of the stake of Xining without going through the Government Approval route
16. Nonetheless, Ms. Kean is keen to get this agreement on the table – she is fiercely protective of her image
and a woman of her word - she doesn’t wish to layoff any employees, given. Further these employees had
an offer from Eagle Airways (unbeknownst to Ms. Galavan), who were fierce rivals of Xining. Some of
these employees who are deemed supposedly unnecessary are those who designed the in-flight
entertainment system, which has remained a key contributing factor to the company’s success and Kean is
reluctant to let them go. She would also like to believe that most employees themselves wished to continue
with Xining itself, as they understood that Xining stood out because of its in-flight services. Reduction and
gradual increase of their salaries in a phased manner, was a possibility she was willing to otherwise discuss,
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 of
employees in a manner which would not result in bad faith.
17. The amount required by Xining Airlines under the “bail-out” deal is to the tune of A$450 Million
comprising money for settlement of EPF penalties, A$200 towards the payment of creditors to ensure that
no Winding up proceedings are commenced against Xining Airlines, as the financial valuation of Xining
is only A$300 million; payments on aircrafts; initial payment of outstanding salaries until an interim phased
action plan is put in play; for refunds to online low cost dynamic airfare scheme for customers’; other Misc
costs [dues to oil corps., airport charges, etc.]
18. Ms Galavan on the other hand, has made up her mind clearly, and wishes to be guided in the negotiation
by the following two points (not divulged to Ms Kean) –
a. one, that the refund of the low-cost fares to the public must be made and the issue settled and
b. two, that they had strong plans of laying off 600 employees - 300 in the next quarter and another 300 in the
subsequent quarter and further reduce the salaries of other employees until the Airlines becomes financially
stable. Ms. Galavan is also interested to learn more about the entertainment system of Xining Airlines as it
has been very popular with flyers.

The Due Diligence report projected that Xining is currently valued at only A$300 million and its debts and
penalties add upto A$200 Million Dollars. Further, Ms Galavan is hopeful that the EPF defaults can be
made to go away with the payment of a penalty amounting to an additional A$50 Million, and the more
pressing concern is that of the aircrafts – both the leased aircrafts as well as those under the purchase
agreements which would require a further payment of A$40 Million as a capacitation fee.
[A$390 million total agreement upper limit]
Nonetheless, Ms Galavan’s continuing concern is with the formalities associated with the bail-out
arrangement -while Ms Galavan is open to going all-out in helping her friend’s company out of a spot, the
whole “seeking government approval” is keeping her wary of attempting anything too drastic.

Ms Kean and Ms. Galavan are meeting for negotiations along with their company counsel to discuss next steps.
***

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[Original Problem drafted by Sanjay Krishna. Adapted and modified by Aakanksha Kumar. Copyright vests in ADR Society, JGLS]