Vijay Mallya does not like to concede defeat but the odds are overwhelmingly stacked against the feisty industrialist as he battles to resurrect Kingfisher Airlines.
With the grounded airline accumulating debt of over Rs 13,000 crore and banks unwilling to bail it out, Mallya is fast running out of options to raise funds required to resume operations.
Kingfisher needs an immediate capital infusion of some $700 million (Rs 3,710 crore), according to estimates by aviation consultancy firm Centre for Asia Pacific Aviation (CAPA). By all accounts, the airline is unlikely to fly again soon and is increasingly looking a prime case for the Board for Industrial & Financial Reconstruction (BIFR), a government body which suggests remedial measures for sick firms.
There don't appear to be too many options for Mallya if he plans to recapitalise his airline. These include getting an investor on board, possibly a foreign airline, or selling his stake in other UB Group companies, or both. Indeed, getting further support from banks is possible only after the airline brings in fresh equity.
The first round of capital infusion into Kingfisher
would have to come from the UB Group and banks, and a foreign airline might show interest only later, says Kapil Kaul, CEO of CAPA. "Kingfisher Airlines must first get net worth positive," he says.
The Kingfisher management has also told the aviation regulator Directorate General of Civil Aviation (DGCA) that it will use funds from internal sources for the airline. There is, however, no clarity on where that money will come from. The airline management still seems to be working on a revival plan. No financial and operational plan has been submitted to DGCA yet. BT's email and text messages to UB Group officials went unanswered.
The UB Group is already in negotiations with UK drinks giant Diageo
for a stake sale in United Spirits. This is not the first time, however, that both have engaged in talks. A similar initiative had collapsed in 2009. This time around, too, after protracted negotiations over the past few months nothing concrete has emerged so far.
Some analysts believe that Mallya might also sell a significant part of his 22 per cent stake in United Breweries to Dutch brewing giant Heineken, which already holds 37.4 per cent in the company. It might fetch him over Rs 4,000 crore at United Breweries's stock price at the end of October.
Some industry experts believe that even if the Diageo deal goes through, it still won't pull the airline out of the woods. In the absence of a coherent turnaround strategy it may be futile for the airline to resume operations, they say. "Even if Mallya manages to get about Rs 3,500 crore by selling stake (to Diageo), it will not help Kingfisher Airlines. The airline will still become a BIFR case," says Kishor Ostwal, Chairman & Managing Director of CNI Research, an equity research firm. But Mallya recently told Reuters that he is not willing to sell his "family silver" to rescue the carrier.
Both United Breweries and United Spirits are market leaders in India's liquor market. A five-year-old company whose net worth has been completely wiped out can go before BIFR. Kingfisher Airlines meets this criteria but his creditors (the airports, oil companies, lenders and lessors) need to agree. If Kingfisher Airlines goes to BIFR, it might just help Mallya but banks could end up taking a massive hit on their books. There is the recent example of Chennai-based Southern Petrochemicals Industries Corporation, which was referred to BIFR. Banks and financial institutions are understood to have settled for a repayment of just Rs 225 crore against a debt of Rs 1,600 crore.
There are other reasons too why Kingfisher should avoid rushing into restarting operations. In its October report CAPA stresses the need for the group to clear the outstanding salaries of employees first . "Continuing in this manner can surely only inflict further damage to the brand not only of the airline, but the wider UB Group. In these circumstances it would be better to voluntarily shut down and focus on an orderly restructuring rather than limp along," says the report. Retaining brand equity is critical if the airline wants to remain an option for any foreign airline which might be interested in picking up an equity stake at the right price, say analysts.
The market conditions, too, are not conducive for reviving the airline. The aviation sector's growth is slowing and there are pricing pressures, says Mahantesh Sabarad, analyst at Fortune Broking.
Clearly, if Kingfisher has to stage a successful comeback, it must shed the baggage of its past and start afresh. There is already a shining example. Do people remember that SpiceJet is the reincarnation of an airline called ModiLuft?