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The king goes fishing while the kingdom is besieged

Kingfisher has been a loss making entity, since the day Vijay Mallya announced its launch in 2003. To put it in perspective, all his competitors, including the much maligned national carrier, Air India, were actually making profits, till as late as 2005-06, while he sustained continuous losses. Undaunted, he attempted big capital spends. His was the first and only Indian carrier to order the mammoth Airbus A380!

The king goes fishing while the kingdom is besieged

In 2007, Vijay Mallya bought over the crisis-ridden, no-frills Air Deccan owned by Capt Gopinath. The merged group planned to save up to Rs 300 crore on costs with a combined fleet of 71 aircraft. Through a reverse merger, Kingfisher Airlines became Air Deccan and once the entire acquisition was completed with necessary approvals from the regulator SEBI, Mallya changed the airline’s name back to Kingfisher Airlines in 2008!   

 

Mounting debts – unrelated to assets

 

In 2010, banks started crowding around Mallya asking for the money that Kingfisher borrowed.   He sat with the bankers to restructure his debt and the bankers obliged. Kingfisher’s debt was reduced to Rs 6000 crore from the previous Rs 8414 crore, when some of the debt was conver-

ted to equity. Banks took up a 23 per cent stake in the airline, with each Kingfisher Airline share being valued by the banks at Rs 64.48. The banks determined that 23 per cent of the airline, at the above share price, was about Rs 1400 crore. This price was knocked off from the original debt. The share price of Kingfisher Airlines on that day was Rs 39.90. This means that Mallya was given huge premium of 61 per cent per share in his failing company.  Who allowed that? Who fixed the price?

 

Banks were so obliging!

 

The banks, which are under the control of the government of India, literally wrote off Rs 400 crore, even after their generous calculation. While Vijay Mallya claimed he had reduced his debt, he had actually deprived the depositors and the banks of more than Rs 1000 crore. Mallya has swallowed, as of 21 November 2011, at least Rs 1200 crore of depositor’s money from various banks. Add to the above straight loss of Rs 1200 crore, banks also reduced the interest rate of his left-over debt of about Rs 7200 crore so that he could repay, as and when his lordship pleased.

    The ‘honest industrialist’ claimed ‘all was well.’ The reasons for banks’ liking for Kingfisher, an airline that never made any profit since its launch, is unknown even today. Was it Mallya’s political influence that prompted banks to forget the basic rules of the game?  Or did he ‘pamper’ senior bankers with joy trips? Was the collateral adequate for lending such large amounts? Did banks have a clear idea about how the money would come back from a loss-making airline? There are questions still unanswered. But one thing is for sure: banks were always extremely kind to Mallya.

However, the fundamental question is didn’t banks realise that they were dealing with a near insolvent company? The facts were on the table: a company that has not made a profit since the day it was established and had substantial unpaid bills in almost every sphere of its business. Its debt was rising every day. And the global outlook on the aviation sector in general has been negative for the last few years.

Kingfisher owed Rs 890 crore to its fuel suppliers. It was so bad that IndianOil put Kingfisher on a Cash-and-Carry basis ie they had to pay for every drop of fuel, before it actually goes into their planes. BPCL and HPCL, the other two suppliers, stopped supplying fuel completely. BPCL has even filed a court case against Kingfisher Airlines for recovery on unpaid dues of Rs 250 crore.

The company owes the Airports Authority of India undisclosed amount of landing charges. Their cheque of Rs 151 crore to clear past dues bounced. And as a harbinger of further trouble, both the Bangalore and the Hyderabad airports asked Kingfisher to pay landing charges before landing. It has no assets that it can sell as all its aircraft were leased.

Kingfisher had to return its five ATR aircrafts, the mainstay of its short haul flights, to its lessors as it could not afford the lease amount. With that, the total number of aircraft returns since 2009 due to non payment of lease rent, increased to 19.

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