Following a spate of cancelled flights over successive days at Kingfisher Airlines, debt of Rs 7,500 crore and mounting, a July-September quarter loss of Rs 469 crore, delayed salaries, a churn among pilots quitting, and rumours of lessors wanting to repossess planes, its Chairman Vijay Mallya held a press briefing on November 15 in Mumbai .
Late by almost two hours, besieged by reporters and cameramen as soon as he arrived, pushed and jostled, bombarded with inconvenient questions, Mallya ultimately walked out. But not before putting up a spirited defence: he was not closing down the airline, he was not laying off staff, he was not seeking a bailout, not even a restructuring of his debt. All he wanted was another loan to tide over his working capital crunch. "There is a lot of focus on debt," he said. "This kind of debt is not unusual for an airline of our size."
EXCLUSIVE: Two airlines are doing everything to ensure Kingfisher collapses: Vijay Mallya
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At the press conference and other forums, Mallya, Kingfisher Airlines's CEO Sanjay Aggarwal, and the Mallya-owned UB Group's Chief Financial Officer Ravi Nedungadi, continued to blame everyone but themselves for their airline's plight: the high cost of aviation turbine fuel, or ATF, the rise of interest costs, and various policy and regulatory hurdles. Aggarwal explained why the cancellations were unavoidable: the airline was reconfiguring a sizeable number of its aircraft, following a decision in September to close down its low-cost arm, Kingfisher Red, in four months time.
Mallya's fury came through in his tweets: he slammed the press for sensationalist reporting, as well as some of his rivals like SpiceJet CEO Neil Mills. Mills, a South African, had argued that taxpayers' funds should not be used to save any airline. "He should focus on his own country and not give advice to India," he tweeted.
The Kingfisher Chairman has faced rough situations earlier, but the chances that he will be able pull a rabbit out of the hat this time are slim. A debt-equity conversion deal sealed with banks in April this year has already eroded 62 per cent value and banks are unlikely to do a similar deal. Mallya has spoken of a domestic strategic investor bringing in equity, but an infusion of Rs 1,000 crore without a restructuring of debt may not ease the current situation much. Mallya insists that if maintenance deposits with lessors are replaced by bank guarantees and the Rs 1,000 crore infusion he expects - whispers in New Delhi's power circles say Sahara's Subroto Roy could be the one backing Kingfisher - is used to repay debt, he will be in a less onerous spot. (See interview Two airlines are doing everything
... .) But even with the cash infusion, Mallya's problem of controlling costs remains. Even if half his fleet is taken away, costs will not go down, said a rival airline's chief.Five-Star Start
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Another reason many do not believe Kingfisher will come out of its mess lies in Mallya's record of flip-flops in strategy. Before buying Air Deccan in 2007, he had claimed low-cost carriers and full service airlines addressed different segments of the market and the latter had a profitable future. But when Deccan was up for sale and it was almost certain Anil Ambani's ADAG companies would acquire it, Mallya moved in quickly making a deal with India's first low- cost aviation entrepreneur G.R. Gopinath.MUST READ
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Having a five-star airline and an ultra low-cost operation - branded Kingfisher Red - under one roof turned out to be disastrous. Gopinath says the shrinking distinction between full service Kingfisher service and Kingfisher Red led to passengers shifting to the latter. Next, when Kingfisher Red was made costlier than rivals Spice and IndiGo, it caused an exodus of passengers to these two low-cost airlines. "In the low-cost model, the money from passengers comes upfront unlike in the full service airlines," says Gopinath. "This could have overnight injected about Rs 1,000 crore into the company's treasury."
Despite a healthy market share - 16.7 per cent currently - it has been downhill for Kingfisher since 2008. It has been fighting battles with several creditors. It has lost top talent like Alex Wilcox and Nigel Harwood, who, rumours claimed, quit because of the chairman's interventions in day-to-day operations. A debt-equity conversion in April this year, which gave banks like State Bank of India (SBI), ICICI Bank, IDBI Bank and 11 others a 23.4 per cent stake in the airline, was meant to be a silver bullet but has not turned out to be one. Kingfisher now operates 300 flights a day now to 54 destinations, down from 360 flights to 67 destinations a few months ago.
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My airline competitors assume their own financial viability based on the demise of Kingfi sher. And they are doing everything. Crazy Industry.
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To be sure, though the aviation sector grew by around 18 per cent from January 1 this year to date, most Indian airlines - not Kingfisher alone - have been bleeding. Market leader Jet Airways, for instance, has a total debt of Rs 14,000 crore, and recorded a second quarter loss this year of Rs 714 crore. Unlisted IndiGo is the only airline in India to continue turning in profits by following a clear low-cost strategy from Day one.PERSPECTIVE:Kingfisher and what ails Indian aviation
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No concrete step has been taken by the government so far to help Kingfisher. The civil aviation ministry has asked the finance ministry to take the lead, which in turn has sought the view of public sector banks. SBI Chairman Pratip Chaudhuri told Business Today that Kingfisher had not asked for extra funds. "Unless the company asks you cannot push it down its throat."
There is a persistent suggestion that direct investment by foreign airlines be allowed in the aviation sector but with most European carriers in debt themselves and the home ministry unlikely to look favourably to airlines from West Asia, that move looks a non-starter, for now.
Yet the consensus is that Kingfisher will survive the crisis. "I believe failure is not an option for Mallya," says one of his creditors who does not want to be named. "Nor will the government want an airline carrying a fifth of the domestic capacity to go under." Additional reporting by K.R. Balasubramanyam and Anand Adhikari