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When The Pilot Sleeps

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Disaster seems to strike Vijay Mallya's Kingfisher Airlines in twos. Last week, the airline cancelled a number of its scheduled flights due to — it appears — two reasons. First, birds hit certain aircraft. And next, its accounts were frozen by the income tax department. At least those were the two reasons the airline offered to explain Kingfisher's spate of unplanned cancellations even as its creditors continued to hound it for overdue payments and employees complained of working without salaries.

The airline's management must think that the world is full of naive people since they changed their story mid way last week —from bird hits to a frozen bank account — and still expected the public to swallow it. Not only are these excuses laughable, I suspect things would not have been different even if the accounts were not frozen, given that the airline's coffers are empty anyway.

Kingfisher Airlines chairman Vijay Mallya, of course, pointed to the various negative factors that his airline was battling. What he seems to ignore is that all these factors apply to the other airlines as well. Sure, oil prices have risen, but they have risen for all the airlines. Taxes on air turbine fuel remain an issue, but every other airline in India pays the same. And foreign direct investment has not happened for any of them. So, if he finds himself in a unique situation, he has only himself to blame.

Mallya has confused business models — low-fare and full service — time and again, and he has paid the price for that. He has never had a proper management team or chief executive in place (and if rumours are true, Sanjay Aggarwal, the CEO who joined in 2010, will be with Mallya only up to March). Instead of focusing on making his operations more efficient, Mallya has — without any compunction — relied on his political clout and influence to convince Indian banks to bail him out. No matter what he says, it is a bailout that he has got. No banker in his right mind would agree to fund his unviable and inefficient company unless it happens to be a government-run bank such as State Bank of India. Can anyone tell me how much exposure Standard Chartered or HSBC have to this airline? How come they are not losing sleep over keeping Kingfisher flying? The government has more than once helped out the airline indirectly, allowing public sector banks to cough up more funds. And if newspaper reports are anything to go by, this may happen yet again.

The government has also taken one or two other policy decisions — but none of them are likely to help Mallya. It has removed Air India's right of first refusal for various bilateral rights so that the private sector can cash in. But Kingfisher, with its money problems, is unlikely to foray into many new unexplored territories. Or at least I hope not.
Second, the government has allowed the airlines to import fuel directly. I really do not understand the mechanics of how this will work, but Jet Airways officials tell me they tried this once and it did not make a noticeable difference to their bottomline.

The third step, the much promised foreign direct investment, remains just that for now — a promise. So, the only way the government can assist Kingfisher is to persuade public sector banks to lend it some more money. Here too, Kingfisher only stands to gain if some fresh line of credit comes forth. Mere conversion of debt into equity will not help much barring lowering the promoter's stake in the carrier. Working capital loans will disappear even before they hit the poor frozen accounts — so long is the line of creditors eyeing it.

So, finally, it is high time Mallya stopped offering "unconditional apologies" to his fast dwindling list of "guests" and started apologising sincerely to his employees, several of whom have lost or will lose their livelihoods in the process, and to his creditors. Even if the airline continues to limp along (a rival airline CEO says even if some money does come in by April 2012, the airline will be right where it started), it will be a far smaller, scaled-down version, which means many jobs will go. It is a true failing of the market system when the promoter gets away with no change in his wealth statement or lifestyle even as hundreds of employees and shareholders pay the price for his mistakes and follies. It is to those people Mallya needs to offer apologies.

And no one should look at the Directorate General of Civil Aviation for steps such as cancelling the airline's scheduled operator permit and so on. In a country like India, he will be kissing goodbye to his job (and his career) if he starts taking strong, decisive steps like this. It is not even up for discussion.


(This story was published in Businessworld Issue Dated 05-03-2012)