Kingfishers Bailout

Kingfisher seeks govt help for bailout

Facing serious financial turbulence, Kingfisher Airlines has sought government help for a bailout even as it contin ued its flight curtailment spree for the fif th consecutive day today and its stocks plummeted over 19 per cent to an all-ti me low but recovered slightly later

 The seriousness of the crisis was underlined by the urgent requ est made by the Kingfisher owner, Vijay Mallya, to the Finance M inister, Pranab Mukherjee, and the Civil Aviation Minister, Vayalar Ravi, to help Kingfisher with infusion of funds through banks at l ow interest rates, besides other concessions in line with what Ai r India was getting, sources said. However, there was no official word immediately on whether any step was being taken on Mally a's request made earlier this week. Some 50 pilots and cabin crew did not turn up for duty by report ing sick as over 40 flights were cancelled across its network tod ay. Innumerable passengers across the country cancelled Kingfi sher flight tickets to travel by other airlines, though after paying 20-40 per cent higher at the last moment.
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 The airline, which had earlier said it would restore its flights after October 19, has now indicated that it would take a few more we eks to normalise the flight schedule that would go into the peak winter season air traffic. Apart from taking aircraft off flights to reconfigure and install business class seats in them, the airline CEO, Sanjay Agarwal, told PTI: "We decided to reduce the frequency in some of the routes where we had multiple flights like Delhi-Mumbai or low passenger load like Nanded-Mysore. Asked whether they had responded to the show-cause notice is sued by the Directorate General of Civil Aviation (DGCA), Agarwal said, "We are in close touch with them. We are explaining to them that these cancellations are temporary in nature. We are keeping them informed.

 " DGCA has issued the notice under Rule 140(A) of the Aircraft Rules, 1937, asking Kingfisher why it had not taken the regulator 's prior approval to curtail its flight schedules as required by this rule. It has also sought to know whether the airline had taken an y step to facilitate the passengers inconvenienced by the cancel lations. Meanwhile, all the oil PSUs -- HPCL, IOC and BPCL -- have de nied extending credit line to the liquor baron Mallya-owned airlin e and asked it to pay for lifting jet fuel on a daily basis. The airli ne has suffered a loss of Rs 1,027 crore in 2010-11 and has a mounting debt of Rs 7,057.08 crore.

 To questions on alleged exodus of pilots and cabin crew from t he airline, Agarwal: "There is a process of natural attrition. Pilots and other staff come and go. If you put the number of pilots wh o have left in over 7-8 months, it could be 100. "This has not happened all of a sudden as is being projected. Not a single Kingfisher flight has been cancelled due to shortag e of crew as is being reported. We have over 650 pilots on our rolls now," the CEO said. Industry sources said the lessors of Kingfisher's leased turbopro p ATR aircraft fleet have put the airline on notice and want urgent payments for the lease. The cash-strapped carrier also h as unpaid dues to the operators of airports and other agencies, which have also been putting pressure on it to expedite payment.
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Why is the government eager to bailout Kingfisher instead of Air India?

Lenders have already burned their fingers with the 'king of good times' carrier and yet, the government is eager to bailout the de bt ridden Kingfisher for the second time Kingfisher Airlines, which won the Skytrax award for India's best airliner in 2011, is again facing turbulence and instead of landin g. There are efforts from certain quarters to keep the debt-ridde n airline afloat. According to reports, Aviation Minister Vayalar R avi indicated that the government might speak to lenders, espec ially state-owned banks for a possible bailout of the Airlines. Mr Ravi had been quoted as saying that he had spoken with Financ e Minister Pranab Mukherjee and Petroleum Minister Jaipal Redd y, after Vijay Mallya, the flamboyant owner of Kingfisher sought government's help.

 The question is why the is government eager to help bailout Mr Mallya and his debt-ridden Airlines for the second time, when it s own national carrier, Air India is still not out of trouble? About a year ago, 18 lenders agreed to restructure Kingfisher's debt of Rs8,000 crore by cutting interest rates and converting part loans into equity shares. Lenders, including State Bank of India (SBI) and ICICI Bank converted debt of Rs1,400 crore into equities at around 60% premium at Rs64.48 per share to Kingfisher's marke t price of Rs39.9 a share in April 2011.

Considering Kingfisher's closing price of Rs19.85 per share on Friday the lenders already have lost Rs44.63 per share in the co mpany. And yet, the politically well connected owner of the com pany is seeking government bailout

 Over the past four days, Kingfisher have grounded over 120 flig hts forcing the Directorate General of Civil Aviation (DGCA) to is sue a show-cause notice to the carrier for not taking its prior pe rmission to curtail its flight schedules. Kingfisher's chief executi ve Sanjay Agarwal told PTI that the entire exercise is part of its r oute rationalisation to improve profitability. We decided to redu ce frequency in some of the routes where we had multiple flight s like Delhi-Mumbai or low passenger load like Nanded-Mysore, he said. According to reports, on Thursday, Kingfisher operated only 64 % or 269 flights out of the 418 flights of its winder schedule allo cated by the DGCA. Kingfishers action has caused immense he artburn to thousands of passengers as following the flight cance llations; they had to pay a premium of 20% to 40% to travel by o ther airlines. The cancellation of flights and alleged quitting of ar ound 130 pilots from Kingfisher may be the airlines way to creat e some pressure on the government for a bailout package.
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 However, the question remains, why the poor traveller had to suf fer time and again even after paying a premium on Kingfisher tic ket?The airline has suffered a loss of Rs1,027 crore in 2010-11 and has a mounting debt of Rs7,057.08 crore. Since starting its commercial operations in May 2005, Kingfisher has yet to see pr ofit on annual and total cost basis. Earlier, in July as per the requirements of the debt recast packa ge, United Breweries (Holdings) Ltd and Kingfisher Finvest Ltd, both founder companies of the Airlines had to pledge their entir e stake with some of its lenders. While United Breweries (Holdin gs) had a 40.1% stake Kingfisher Finvest had 12.75% stake in th e carrier, which they had to pledge with lenders During the same month, state-owned Hindustan Petroleum Corp oration Ltd (HPCL) stopped fuel (ATF) supplies to Kingfisher Airli nes for about two hours owing to the non-payment of dues. An other state-owned oil marketing company, Bharat Petroleum Co rp filed a case against Kingfisher for recovery of its dues of Rs2 45 crore. Even after an order by the High Court to pay whole am ount in one go, Kingfisher paid the dues in instalments.
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 While lenders are still crying, the Airlines and its prom oter, however, can be seen in the limelight all the tim e. While, it desperately needs a sponsor to survive, Ki ngfisher sponsored Force India, a formula one racing outfit, owned by Vijay Mallya. Cash-strapped Kingfisher Airlines, the country's No.2 air carrier by market share,

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Indian minister says no Kingfisher bailout

(Reuters) - India's civil aviation minister ruled out a public bailo ut for India's Kingfisher Airlines (KING.NS) or any other airline, ur ging private airlines in India to put their own house in order. "There is no bailout scheme or plan by the government for any o f the private airline before me," Valayar Ravi said during a privat e visit to Sharjah in the United Arab Emirates. Reports this week said that the government had decided in princ iple to allow foreign airlines to own up to 24 percent of Indian c arriers, a move that could throw a lifeline to Kingfisher and its st ruggling rivals such as Jet Airways (JET.NS) and SpiceJet (SPJT .BO).

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 "There is a representation by many institutions and people for s ome kind of FDI. But the government has not taken a decision o n it. It all depends on the financial policies, Kingfisher chairman Vijay Mallya, the liquor tycoon who owns a cricket team and a Formula One racing team, has said the gover nment should allow foreign airlines to buy stakes in Indian carrie rs. "In totality the managements should also be very careful." When asked if Kingfisher Airlines was mismanaged, he said: "Th at is for him (Mallya) to decide whether he managed it properly or not. If mismanaged, he will pay a heavy price." Industry executives have blamed Kingfisher's problems on vario us factors including its purchase of a low-cost carrier and a mix ture of weak oversight and different fleet types, which are most costly to operate.

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FUEL, SALES TAX HIT PROFITS

Kingfisher's competitors such as private carrier Jet Airways, bud get airline SpiceJet and the national carrier Air India have all bee n facing losses in the face of rising fuel costs and sales tax by state governments. The Center for Asia Pacific Aviation has forecast a record $2.5 b illion to $3 billion loss for Indian airlines for the year ending Mar ch 2012, with state-run Air India alone likely to account for mor e than half of it. "In India, the problem is the sales tax. Every state is making a m ajor income from it for their exchequer. I requested chief ministe rs not to do that. Only two or three states including Kerala and A ndhra Pradesh reduced it," Ravi said. The fragility of India's fast-growing aviation sector weighed on t he Dubai Air show despite more than $62 billion in total civil aer ospace and defense orders. "I am beginning to become seriously worried, but so far we are j ust watching to see what happens," a senior executive with a su pplier to the Indian aviation market said.
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 Another said it could take about $400 million dollars for Kingfish er to be rid of investor anxieties but that there was no sign of le asing companies or creditors reclaiming aircraft. But another official with business links with the company said re ckless press coverage was aggravating the situation and predict ed Kingfisher would pull through. None of the executives agreed to be quoted because of the mat ter's sensitivity. Planemaker Airbus (EAD.PA) so far appears to be supportive of the company after Kingfisher's Mallya said they had agreed to p ostpone delivery of 5 A380 superjumbos to a yet unspecified da te. Aircraft have to be paid for on delivery.

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 "Fuel price is the major issue before us. We are trying to represe nt this matter on how to get over this crisis. Air India also has th e same problem and we are under discussion on how to get ove r that." Despite the country's proximity and strong business links, Indian airlines did not have a strong presence at the Dubai air show, alt hough Jet Airways founder Naresh Goyal paid a visit and toured the Boeing (BA.N) 787 Dreamliner of which his airlines has 10 o n order. Driven by liberalization and the growth of middle classes, India i s nonetheless a big part of the growth story touted in Dubai this week despite economic malaise in the West. Manufacturers and suppliers in Dubai expected this growth to c ontinue almost unabated despite the economic crisis in develop ed markets. The public indignation on Kingfisher Airlines asking for a bailout is unwarranted. Firstpost.coms consensus is clear: Do not bail out Kingfisher. Newspapers, blog sites, comments on the net etc. are all about why the airlines should not be bailed out.
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 Let the market do its work, they say. Many have become person al, bringing the man behind Kingfisher Airlines, Vijay Mallyas fla mboyant lifestyle, into focus. Kingfisher Airlines is deep in the red and does not have money t o pay for aircraft fuel or its own staff and has cancelled flights d ue to the cash crunch. The company has approached the aviatio n ministry for help and this is causing the public outcry. The markets have already punished Kingfisher. The market capit alisation of the company is down 78 percent over the past one y ear, and its shareholders have suffered for remaining invested in the company.

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 The market capitalisation of the company is down 78 percent ov er the past one year, and its shareholders have suffered for rem aining invested in the company. Krishnendu Halder/Reuters Its lenders, including large banks such as SBI and ICICI Bank, ar e assessing the impact of Kingfisher going bankrupt on their bal ance sheets and, by all indications, the impact is very minimal at less than 0.15 percent of total assets. The company can very well close down operations and declare bankruptcy and no one will be the worse for it except passenger s who have booked their flights and will have to pay higher airfar e to rebook them on other airlines. Kingfishers employees too will suffer as they will lose their jobs and not be paid their dues.

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Presenting the case for a bailout

The question, is why should Kingfisher not be bailed out? India and the world are living in an era of bailouts. India bailed o ut many sectors hit hard by the market collapse in 2008, includi ng the financial sector. The EU (European Union) is bailing out Greece, Ireland and Port ugal as these countries are sinking under debts. The US bailed out banks and investment banks, as well as automakers in 2008. The UK bailed out banks and mortgage lenders in 2008 as well. Kingfisher will be right in feeling that its being made a scapego at when everyone has been bailed out. Banks are continuously r estructuring loans either of their own free will or due to pressure from politicians.

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 The Reserve Bank of India will never let any bank fail in this cou ntry as seen in the case of GTB (Global Trust Bank). Satyam Co mputer, when it declared its fraud, was not abandoned to sink. The government got involved and made sure that it got taken ov er.

If the government does not bail out Kingfisher, it should have a clear-cut policy of not bailing out any company that is in trouble Then letting Kingfisher die will make sense. However, letting Kingfisher die and then bailing out the next co mpany in trouble that has close political connections will leave t he public fuming.

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There are some question arising here?

While competitors like Jet Airways and IndiGo are run ning successfully, why someone like Kingfisher need help all the time? Does it have to do something with t he incumbent management? We can't says given that the same promoters are running a very successful liq uor business. Anyway, whether Kingfisher would rema in afloat by taking government's help for the second t ime would be worth watching for the sake of good ti mes. tknpnt1111.flv

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