Purchase of low-cost, loss-making passenger carrier Air Deccan, lack of independent management to run both full-service and low- cost carriers and easy access to debt guaranteed by the parent to grow led Kingfisher Airlines into a debt trap.

?Purchasing a loss-making, low-cost carrier to grab market share and urgency to fly international routes in the early days was the first downfall,? says an investment banker with a foreign bank. ?A combination of full-service and low-cost carriers under one management is lethal, unless both fight against each other for routes, parking slots and share.?

Kingfisher Airlines chairman Vijay Mallya said on Wednesday it had shut down its low-cost carrier Kingfisher Red, asked for working capital from banks, sought government help to allow import of aviation turbine fuel to stay afloat and batted for foreign direct investment in airlines to raise money.

?The management was unable to extract the synergies between the two airlines in getting concessions to purchase planes, better payment schedule from oil companies, lesser ground handling and maintenance and repair charges from its aircraft makers and suppliers,? the investment banker said. ?They chose to make one prosper at the expense of the other, a model profitable global airlines have shied away from.?

Air Deccan?s revenue did not meet Kingfisher?s cost, says another banker.

A controlled slow growth would have been less taxing on capital requirement, but the airline relied on debt to grow. The airline made a loss of R732 crore in the half year ended September 30 and has to repay R7,000 crore to lenders from 2013.

Kingfisher borrowed easy debt to grow fast. Lenders followed ?name lending? than project lending, says another investment banker. ?They should have been prudent in lending to the airline, where the first right for its main asset or planes rests with the lessor.? Some lenders, who converted a part of loans into equity shares, have lost two-thirds of the value as investors flee from the stock.

The airline is seeking partners to sell equity and raise money to bring down leverage ratio. ?We have proposals from investors to sell stake,? says Mallya. His chief financial officer Ravi Nedugadi said they are willing to cut down promoters? stake to 26% from 52% now.

Regulators say Mallya was over ambitious and blaming government policies won?t help. ?Kingfisher Airlines tried to be the Emirates of India,? said a senior DGCA official on the sidelines of an aviation conference. ?Now they are saying the routes were unprofitable and that?s why they cancelled flights.?

?Blaming the government and the policies won?t help aviation industry out of trouble,? says the DGCA official. ?It is a free market and if the costs are high, the airlines can raise fares to a reasonable level, be more careful with the route planning and manage their fleet better.?

The official said due diligence and feasibility checks need to be done before flying on new routes. ?A mad rush of market share will obviously lead to a situation like this, ? he added.

But Kingfisher Airlines has started the process of trimming costs and losses. It has started cancelling unprofitable routes, seeking lenders to give guarantee to lessors to free R1,000 crore deposited with them for working capital, money to run the airline and reconfiguring planes to fly with more seats. ?The airline is cancelling unprofitable routes as they look to gain financial strength,? says Sanjay Agarwal, Kingfisher Airlines? chief executive. The airline has never reported a profit from start.

According to GE Aviation and Pratt & Whitney officials, if airlines chose to re-engine their aircraft, they can bring down fuel burn by up to 15-16%. Airlines spend 40% of their cost to purchase aviation turbine fuel.

?Re-engineing of aircraft is the single largest way of bringing down fuel costs in an efficient way without expanding the fleet with new aircraft,? said an official from an American airfraft engine maker.

Regulators have also turned tough with the airline. ?We have some more requests for international routes pending from Kingfisher Airlines. These will be cleared only after getting a guarantee that they will not cancel flights on these routes all of a sudden,? said the DGCA official.

Airport regulator, Airport Economic Regulatory Authority (AERA), too feels that it is unfair to blame airport charges for rising costs of the aviation industry. ?We need high quality airports in the country and this comes at a cost,? said a senior AERA official. ?Just because Vijay Mallya feels the airport charges are high, we cannot lower them.?

?Before the new airports came into place, the airlines asked for better infrastructure… Now that we are providing them that infrastructure, they say the airport charges are too high,? the official said.