Kingfisher Airlines (KFA) is in difficulty. The government is doing loud thinking on bailing it out. In Governancenow.com on November 11, 2011 in my article ‘Don’t wait for an occupy Dalal Street’, I wrote: “However, the indirect taxes for corporate may not be tinkered with for supporting particular sector/industry in so-called sectored recessions.  Because Indian trade and industry is now sufficiently matured to meet competition and should as true entrepreneur/ investor in a capitalist system go for risk return trade-off. They should take responsibility for wrong investment decisions if these lack scenario planning or rolling budget or proper risk management techniques.” The logic is in fact true for any tax concession or bail out or any public funding, for that matter.

Even, as early as in June 9, 2010, in my article ‘No objectivity in lending and investment decision’, in Free Press India I had written ‘Take aviation sector – Jet and Kingfisher. After so much of expansion and borrowings, are they viable now? Has operation stabilized? One is going for job cut while the other is unable to pay fuel bill. Yet, even Kingfisher airlines brand has been accepted as collateral by SBI for additional funding. Air India is in total mess with Rs 15,000 crore of debt. The three companies entered international routes when in only aviation sector; recession was on, despite an untapped domestic non-metro market. This is proved by Spice-Jet adding four aircrafts and fresh pilots and cabin crew.’

It is now obvious that the company has been following the high cost model instead of a low cost model which was the order of the day. Further, it was taking out money and most probably investing in the group liquor company. Because, the oil companies providing aviation fuel, have not been paid although the ticket cost includes fuel cost. So obviously, KFA’s operations are not viable. The Playboy of Indian Business could not provide the right kind of leadership and should shoulder the blame.  It may be noted that the only other venture of Mallya, apart from liquor, i.e. Best and Crompton, was perhaps shut down with large bank overdues under similar circumstances.

Mallya is saying he does not want bail out but he wants additional working capital. But for the latter, he has to raise additional equity of Rs 800 crore. Given the state of affairs in the company, no prudent private company, whether foreign or Indian would
be forthcoming... I even wonder if Mallya can raise this money from his group companies because it would ultimately be an investment in a lost cause, so long as he continues in the helm of affairs .and he himself hopefully realises it.

Banks have now about Rs 7,000 crore loan with KFA. They don’t want, on their own, any further exposure. Neither does an AAI and oil companies with overdues of Rs 250 crore and Rs 600 crore respectively and to continue operation at a reasonable scale, KFA therefore will need immediate substantial cash infusion. Thus, as a last resort, appropriate government bailout may have to be considered. But that should be conditional on Mallya handing over his shareholding to government nominated funding agency at Re 1 and the board and the management of the company reconstituted by the agency including appointments of aviation industry experts as the chairman and the CEO. In other words, Mallya along with all his cronies in the current management have to be thrown out before any support can be extended to KFA.