Kingfisher’s Bailout

8/3/2019 Kingfishers Bailout

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Kingfishers Bailout


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Kingfisher seeks govt help for bailout

Facing serious financial turbulence,

Kingfisher Airlines has sought govern-

ment help for a bailout even as it continued its flight curtailment spree for the fifth consecutive day today and its stocks

plummeted over 19 per cent to an all-time low but recovered slightly later

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The seriousness of the crisis was underlined by the urgent request made by the Kingfisher owner, Vijay Mallya, to the Finance Minister, Pranab Mukherjee, and the Civil Aviation Minister, VayalarRavi, to help Kingfisher with infusion of funds through banks at l

ow interest rates, besides other concessions in line with what Air India was getting, sources said. However, there was no officialword immediately on whether any step was being taken on Mallya's request made earlier this week.

Some 50 pilots and cabin crew did not turn up for duty by reporting sick as over 40 flights were cancelled across its network today. Innumerable passengers across the country cancelled Kingfisher flight tickets to travel by other airlines, though after paying20-40 per cent higher at the last moment.

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The airline, which had earlier said it would restore its flights afterOctober 19, has now indicated that it would take a few more weeks to normalise the flight schedule that would go into the peakwinter season air traffic. Apart from taking aircraft off flights toreconfigure and install business class seats in them, the airlineCEO, Sanjay Agarwal, told PTI: "We decided to reduce thefrequency in some of the routes where we had multiple flightslike Delhi-Mumbai or low passenger load like Nanded-Mysore.

Asked whether they had responded to the show-cause notice issued by the Directorate General of Civil Aviation (DGCA),Agarwal said, "We are in close touch with them. We areexplaining to them that these cancellations are temporary innature. We are keeping them informed.

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" DGCA has issued the notice under Rule 140(A) of the AircraftRules, 1937, asking Kingfisher why it had not taken the regulator's prior approval to curtail its flight schedules as required by thisrule. It has also sought to know whether the airline had taken any step to facilitate the passengers inconvenienced by the cancellations.

Meanwhile, all the oil PSUs -- HPCL, IOC and BPCL -- have denied extending credit line to the liquor baron Mallya-owned airline 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 amounting debt of Rs 7,057.08 crore.

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To questions on alleged exodus of pilots and cabin crew from the airline, Agarwal: "There is a process of natural attrition. Pilotsand other staff come and go. If you put the number of pilots who 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 shortage of crew as is being reported. We have over 650 pilots on ourrolls now," the CEO said.

Industry sources said the lessors of Kingfisher's leased turboprop ATR aircraft fleet have put the airline on notice and wanturgent payments for the lease. The cash-strapped carrier also has unpaid dues to the operators of airports and other agencies,which have also been putting pressure on it to expedite

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Wh i h b il Ki fi h


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Why is the government eager to bailout Kingfisherinstead of Air India?

Lenders have already burned their fingers with the 'king of goodtimes' carrier and yet, the government is eager to bailout the debt ridden Kingfisher for the second time

Kingfisher Airlines, which won the Skytrax award for India's bestairliner in 2011, is again facing turbulence and instead of landing. There are efforts from certain quarters to keep the debt-ridden airline afloat. According to reports, Aviation Minister Vayalar Ravi indicated that the government might speak to lenders, especially state-owned banks for a possible bailout of the Airlines. MrRavi had been quoted as saying that he had spoken with Finance Minister Pranab Mukherjee and Petroleum Minister Jaipal Reddy, after Vijay Mallya, the flamboyant owner of Kingfisher soughtgovernment's help.

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The question is why the is government eager to help bailout Mr

Mallya and his debt-ridden Airlines for the second time, when its own national carrier, Air India is still not out of trouble? Abouta year ago, 18 lenders agreed to restructure Kingfisher's debt ofRs8,000 crore by cutting interest rates and converting part loansinto equity shares. Lenders, including State Bank of India (SBI)

and ICICI Bank converted debt of Rs1,400 crore into equities ataround 60% premium at Rs64.48 per share to Kingfisher's market 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 company. And yet, the politically well connected owner of the company is seeking government bailout

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Over the past four days, Kingfisher have grounded over 120 flights forcing the Directorate General of Civil Aviation (DGCA) to issue a show-cause notice to the carrier for not taking its prior permission to curtail its flight schedules. Kingfisher's chief executive Sanjay Agarwal told PTI that the entire exercise is part of its route 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 allocated by the DGCA. Kingfishers action has caused immense he

artburn to thousands of passengers as following the flight cancellations; they had to pay a premium of 20% to 40% to travel by other airlines. The cancellation of flights and alleged quitting of around 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 suffer time and again even after paying a premium on Kingfisher ticket?The airline has suffered a loss of Rs1,027 crore in 2010-11and has a mounting debt of Rs7,057.08 crore. Since starting itscommercial operations in May 2005, Kingfisher has yet to see profit on annual and total cost basis.

Earlier, in July as per the requirements of the debt recast package, United Breweries (Holdings) Ltd and Kingfisher Finvest Ltd,both founder companies of the Airlines had to pledge their entire stake with some of its lenders. While United Breweries (Holdings) had a 40.1% stake Kingfisher Finvest had 12.75% stake in the carrier, which they had to pledge with lenders

During the same month, state-owned Hindustan Petroleum Corporation Ltd (HPCL) stopped fuel (ATF) supplies to Kingfisher Airli

nes for about two hours owing to the non-payment of dues. Another state-owned oil marketing company, Bharat Petroleum Corp filed a case against Kingfisher for recovery of its dues of Rs245 crore. Even after an order by the High Court to pay whole amount in one go, Kingfisher paid the dues in instalments.

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While lenders are still crying, the Airlines and its promoter, however, can be seen in the limelight all the time. While, it desperately needs a sponsor to survive, Kingfisher sponsored Force India, a formula one racing

outfit, owned by Vijay Mallya.

Cash-strapped Kingfisher Airlines, the country's No.2air carrier by market share,

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I di i i t Ki fi h b il t


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Indian minister says no Kingfisher bailout

(Reuters) - India's civil aviation minister ruled out a public bailout for India's Kingfisher Airlines (KING.NS) or any other airline, urging private airlines in India to put their own house in order.

"There is no bailout scheme or plan by the government for any of the private airline before me," Valayar Ravi said during a private visit to Sharjah in the United Arab Emirates.

Reports this week said that the government had decided in principle 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 struggling 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 some 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 government should allow foreign airlines to buy stakes in Indian carriers.

"In totality the managements should also be very careful."

When asked if Kingfisher Airlines was mismanaged, he said: "That is for him (Mallya) to decide whether he managed it properlyor not. If mismanaged, he will pay a heavy price."

Industry executives have blamed Kingfisher's problems on various factors including its purchase of a low-cost carrier and a mixture of weak oversight and different fleet types, which are mostcostly to operate.

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FUEL SALES TAX HIT PROFITS


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FUEL, SALES TAX HIT PROFITS

Kingfisher's competitors such as private carrier Jet Airways, budget airline SpiceJet and the national carrier Air India have all bee

n facing losses in the face of rising fuel costs and sales tax bystate governments.

The Center for Asia Pacific Aviation has forecast a record $2.5 billion to $3 billion loss for Indian airlines for the year ending March 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 major income from it for their exchequer. I requested chief ministers not to do that. Only two or three states including Kerala and Andhra Pradesh reduced it," Ravi said.

The fragility of India's fast-growing aviation sector weighed on the Dubai Air show despite more than $62 billion in total civil aerospace and defense orders.

"I am beginning to become seriously worried, but so far we are just watching to see what happens," a senior executive with a su

pplier to the Indian aviation market said.14


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Another said it could take about $400 million dollars for Kingfisher to be rid of investor anxieties but that there was no sign of leasing companies or creditors reclaiming aircraft.

But another official with business links with the company said reckless press coverage was aggravating the situation and predicted Kingfisher would pull through.

None of the executives agreed to be quoted because of the matter's sensitivity.

Planemaker Airbus (EAD.PA) so far appears to be supportive of

the company after Kingfisher's Mallya said they had agreed to postpone delivery of 5 A380 superjumbos to a yet unspecified date. Aircraft have to be paid for on delivery.

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"Fuel price is the major issue before us. We are trying to represent this matter on how to get over this crisis. Air India also has the same problem and we are under discussion on how to get over that."

Despite the country's proximity and strong business links, Indianairlines did not have a strong presence at the Dubai air show, although Jet Airways founder Naresh Goyal paid a visit and touredthe Boeing (BA.N) 787 Dreamliner of which his airlines has 10 on order.

Driven by liberalization and the growth of middle classes, India is nonetheless a big part of the growth story touted in Dubai thisweek despite economic malaise in the West.

Manufacturers and suppliers in Dubai expected this growth to continue almost unabated despite the economic crisis in develop

ed markets. The public indignation on Kingfisher Airlines asking for a bailout

is unwarranted.

Firstpost.comsconsensus 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.16
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Let the market do its work, they say. Many have become personal, bringing the man behind Kingfisher Airlines, Vijay Mallyas flamboyant lifestyle, into focus.

Kingfisher Airlines is deep in the red and does not have money to pay for aircraft fuel or its own staff and has cancelled flights due to the cash crunch. The company has approached the aviation ministry for help and this is causing the public outcry.

The markets have already punished Kingfisher. The market capitalisation of the company is down 78 percent over the past one year, and its shareholders have suffered for remaining invested inthe company.

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The market capitalisation of the company is down 78 percent over the past one year, and its shareholders have suffered for remaining invested in the company. Krishnendu Halder/Reuters

Its lenders, including large banks such as SBI and ICICI Bank, are assessing the impact of Kingfisher going bankrupt on their balance 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 declarebankruptcy and no one will be the worse for it except passengers who have booked their flights and will have to pay higher airfare 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


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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 out many sectors hit hard by the market collapse in 2008, including the financial sector.

The EU (European Union) is bailing out Greece, Ireland and Port

ugal as these countries are sinking under debts. The US bailedout 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 pressurefrom politicians.

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

If the government does not bail out Kingfisher, it should have aclear-cut policy of not bailing out any company that is in troubleThen letting Kingfisher die will make sense.

However, letting Kingfisher die and then bailing out the next company in trouble that has close political connections will leave the public fuming.

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There are some question arising here?

While competitors like Jet Airways and IndiGo are running successfully, why someone like Kingfisher needhelp all the time? Does it have to do something with the incumbent management? We can't says given that

the same promoters are running a very successful liquor business. Anyway, whether Kingfisher would remain afloat by taking government's help for the second time would be worth watching for the sake of good ti

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Kingfisher’s Bailout