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BW Businessworld

Flogging A Dead Horse

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Why would the lenders of Kingfisher Airlines ask its promoters (I presume this means Vijay Mallya) to invest Rs 425 crore (that too in stages — Rs 105 crore by February 2013, if newspaper reports are to be believed) to kick-start the carrier’s operations in a limited way?
Kick-start and then do what? Rs 425 crore is grossly inadequate for the kind of trouble that Kingfisher finds itself in today. The money would vanish without a trace even before it reaches the airline’s coffers: it owes money to employees in unpaid salaries, and dues to oil companies, the Airports Authority of India (AAI, which manages airports 
in the country), lessors, private airports, and most of its vendors… the list goes on. Besides, the airline’s aircraft are grounded and many of them are in no condition to fly. So how much can Rs 425 crore achieve in such a scenario? How would anything change and how would kick-starting operations make any money?
It is well known in industry circles that the only reason why Kingfisher wants to kick-start operations is that unless it is seen flying at least, there is very little chance of any foreign airline investing in it. It is rumoured that both Jet Airways and Kingfisher are vying for investment from Etihad Airways of United Arab Emirates and that Kingfisher — since it is available for a song — may actually win the race.
With a cancelled permit, the airline has almost zero chance of revival. Aviation ministry sources say that unless the airline submits a viable plan with 4-5 aircraft, which offers a reliable service, the regulator would not be in a position to reinstate the permit (the airline has submitted a limited revival plan to the regulatory body, Directorate General of Civil Aviation).
But as I see it, the amount (Rs 425 crore), is so small that it would vanish in no time. It would be, to my mind, a total waste and I would be surprised if someone as astute as Mallya has any intentions of putting in that kind of money at all!
Then I have another question. Why would anyone invest $1 billion in Kingfisher when one can set up a small airline for around $100 million, and expand the fleet to 24-30 aircraft over three years?
According to estimates worked out by the Centre for Asia Pacific Aviation, $100 million is what it would take to set up a new airline in India today. This would also be enough to ensure its growth and survival — one of the main reasons for airline failures in the country being “undercapitalisation”.
In contrast, State Bank of India (SBI) chairman Pratip S. Chaudhuri has estimated that Kingfisher would require $1 billion to get back in shape. He has also expressed “disappointment” that the airline is not showing any urgency in raising and infusing capital. But the airline has been trying to raise capital for as long as I can remember. The fact that it has failed in its endeavour should tell him something.
I understand that these banks have invested very large amounts of money (SBI’s exposure is to the tune of Rs 1,580 crore) into the airline and, therefore, have a keen interest in ensuring its survival. But to suggest that more money be pumped into the airline makes no sense.
So, one is curious to know what makes Chaudhuri think that someone would put in Rs 5,500 crore to take on all the troubles of Kingfisher. Why would not that someone consider setting up a new airline and starting with a new slate? It is not as if there is huge value left in the Kingfisher brand anymore. And with most of its slots and frequencies cancelled and with many of its planes not even airworthy, one could be forgiven for questioning what value is left in the airline at all.
As I see it, the whole Kingfisher saga has become quite a joke. But one cannot laugh at it since hundreds of employees continue to suffer. Of course, those who could find jobs have left. But with the aviation sector in the doldrums for the past few years, very few new jobs have been created in the industry. As a result, many of its employees without specialisation have nowhere to go. The whole drama has been going on for so long that most employees do not truly believe that the airline will revive at all.
Meanwhile, I do know that Mallya definitely has some supporters: a lot of people I know have switched to drinking Kingfisher beer over their preferred brands — in sympathy and hoping that it will somehow help rescue the airline. Whether that will help Mallya tide over the present crisis or not, only time will tell. 

(This story was published in Businessworld Issue Dated 07-01-2013)