The venerable steam train ran on the only remaining part of the old Waimea Plains Railway, and has been forced to cease its operations in the face of mounting debt.
KAL put the historic train on the market in November, hoping to attract a buyer who would continue to run it as a tourist operation.
Despite attracting interest from Railmark, a United States-based company which was prepared to pay for the Kingston Flyer, 14km of railway lines, the cafe and other associated amenities, and leave it running in Kingston in perpetuity, KAL's prime lender, Prudential Mortgage Nominees Ltd, had blocked the sale, Mr Caldwell said.
Because the train was listed as a category 1 protected historic item under the Queenstown Lakes district plan, it is unlikely to leave the region.
Queenstown Lakes Mayor Clive Geddes said the train was no different from privately owned historic buildings the Buckingham St Cottages, in Arrowtown, which were once owned by Irish developer Eamon Cleary.
"The council, and for that matter the Historic Places Trust, are able to place that protection over privately owned [structures of historic significance]."
With regard to the Kingston Flyer, anyone who wanted to move it out of the region would face "compliance action", Mr Geddes said.
"It's near to impossible [to move it]; that's the advice I've been given, just as it's near to impossible to alter the facade of a category 1 protected building."
Mr Caldwell said a resource consent and planning approval would have to be gained before the Kingston Flyer could move from its "place of residence".
"And it would take one hell of a fight for any resource consent to be approved."
The Kingston Flyer has operated under a "hire agreement" by Kingston Flyer Steamtrain Ltd (KFSL) for the past seven years.
The private company was set up by Ian Caldwell and Phil Kerr, to fund, maintain and promote the train and its October to April operation between Kingston and Fairlight.
While KFSL had performed "extremely well", KAL had not been able to repay about $4.7 million on overdue loans to Prudential.
Robbie Caldwell said since his direct involvement with the company began in late February, Prudential had been "kept fully up to date on all aspects of KAL company operations".
He said two opportunities to capture asset sales had been "blocked" by what he believed was Prudential's "refusal to accept that market conditions have changed drastically in the last 12 to 24 months".
"Prudential's actions have meant that the current operators can no longer carry out business, or pass the operating hire agreement to another operator who, clearly, competently could have."
He called the decision to block the sale to Railmark "baffling".
"I continued to talk to them over the time when we were trying to get a sale . . .
Now, they won't even reply to emails."
Mr Caldwell said KFSL had given notice of termination of the hire agreement, "effective immediately".
As a result, the Kingston Flyer would not operate in the coming season, beginning October 1, and "may well be lost permanently".
"It just defies belief."
He said the feeling in Kingston was "pretty rueful" and the only hope now was for a "rescue package", which would see the Government step in.
Mr Geddes said while it was "disappointing" the steam train would not be operating this season, he was "pretty pragmatic about it".
"There will be a resolution to it.
It would be nice if that resolution would be earlier rather than later."
While he was not surprised the Kingston Flyer had not sold, given the economic climate, he was certain it would.
"It will [sell]; I don't doubt that for a minute."
A Prudential spokesman refused to comment on the Kingston Flyer when contacted yesterday, despite the company's having been given "full authorisation" in an email from Kingston Acquisitions Ltd to comment to the media.
The spokesman said he was aware of the email, "but Mr Caldwell is not an employee of Prudential".
"Company policy is that we don't speak about any of our borrowers or our clients."
