Kingfisher Air poses dilemma for govt

Written by Agencies | Updated: Feb 27 2012, 22:41pm hrs
Kingfisher airlineskingfisher airlines
As Kingfisher Airlines careens toward collapse, the Indian government finds itself between a rock and a hard place.

The government, already weakened by a string of corruption scandals over the past year, will face further political heat if it tries to rescue a money-losing private carrier - especially one owned by a flamboyant liquor baron.

If it lets Vijay Mallya's airline fail, however, the government will hurt state-run banks, which own about a fifth of Kingfisher's shares and three-quarters of its $1.3 billion debt.

Kingfisher is struggling with fewer flights and pilots, staff demoralised by unpaid salaries, and outstanding dues to aircraft lessors, oil companies, airports and tax authorities.

It needs at least $400 million quickly to keep flying, figures Centre for Asia Pacific Aviation (CAPA), a consultancy . Mallya's plans to raise funds through a share sale have been stalled and he has been lobbying the government to get state-run banks to lend more.

But a senior executive at State Bank of India (SBI) , the lead lender to Kingfisher Airlines, said at the weekend it would not consider any fresh loans for the carrier until it raised new equity itself.

Everything depends on equity infusion - how much comes in, whether that will meet the requirements, the bank's Deputy Managing Director, R. Venkatachalam, said in an interview on Saturday in his Mumbai office. First it has to come.

The fast clip at which the government has moved to change regulations in the past two months - airlines can now directly import fuel, lowering their costs, and private carriers can fly overseas more - has lifted expectations that Mallya may eventually win the help he needs from the government.