Reference Auto

So, the king of good times, Kingfisher Airlines, is seeing bad times and the government could be in a dilemma if it tries to bail out the airline.

On one hand, it may be looked upon as the duty of the government to help provide relief to a private airline, while on the other, this move by the government (if it goes on to rescue Kingfisher) may come under intense rap as politicians may argue that the Centre is trying to keep an airline afloat whose owner, Vijay Mallya, leads a flamboyant lifestyle.

But the government may be in trouble on another front. Public sector banks own 20 per cent of Kingfisher’s shares and also a part of the $1.3 billion debt.

Kingfisher is in such dire straits that it needs fresh equity worth Rs 1,000-Rs 2,000 crore before it can seek more funds from banks, State Bank of India, which is the top consortium lender to the airline, said.

A team of 18 bankers, including 14 PSU banks along with four private banks, provided astronomical amounts to the airline, which has debt of over Rs 7,000 crore.

Moreover, the company’s net loss swirled to Rs 444 crore during the previous quarter, owing to high fuel costs and weaker rupee.

Kingfisher is grappling with fewer flights, pilots and staff who have been demoralised owing to unpaid salaries and outstanding dues. Aircraft lessors, oil companies, airports and tax authorities have to also be paid.

But Kingfisher chairman Vijay Mallya has written a missive to his employees where he promised them that he is willing to clear their salaries and other dues.

Mallya is, however, banking heavily on foreign direct investment or FDI in the airline sector to mop up funds.

The government does not seem to be keen to give a go-ahead to FDI in aviation now as it may be greeted with protests (like FDI in retail). The government may lose face again.

Ever since it started, Kingfisher, which was the favourite airline of many air travellers (many even swore by Kingfisher), had never ever made profit.

This could be mainly due to its pricing policy (or overpricing policy) in a highly price-sensitive market like India.

Kingfisher later introduced Kingfisher Red (the airline it formed after taking over Air Deccan from Captain Gopinath).

Even after making Kingfisher Red a low-cost carrier, Kingfisher could never make its fortunes fly mainly owing to two reasons: despite being a no-frills aircraft, the airfares weren’t really cheap enough and Red had a deplorable track record so far as flight timing was concerned (unlike IndiGo, which has been impeccable with its timing).

So, the road ahead for Kingfisher is not to put the government in a dilemma by seeking funds or FDI, but to use its own resources from group companies, like United Breweries, by selling stake in brands like Whyte and Mackay, which the group is planning to do so soon (for a whopping $4 billion?).