Vijay Mallya?s troubled airline Kingfisher on Friday joined the rank of state-owned Air India in asking for a government bailout. With the airline cancelling scores of flights for the fifth consecutive day, more than 100 pilots quitting and the company?s share hitting its lifetime low, civil aviation minister Vayalar Ravi asked his counterpart in the finance ministry to request banks to provide assistance to the company.
Any help coming from banks would not be for the first time. A couple of months back, lenders to the airline had already taken a hit by converting their debt into equity. Banks like State Bank of India (SBI) and ICICI Bank had converted their loans into equity at a price of R64.48 a share, which was 60% higher than the then-prevailing price of R40 a share. Despite the hit, banks own only 24% stake in the company, have only one director on the board and have little say in its day-to-day running.
In fact, reports of a possible assistance by banks led the shares of SBI and ICICI Bank ? which are the top lenders to the company and hold more than 5% equity in it ? fell over 4% in Friday’s trading on the Bombay Stock Exchange. The Kingfisher scrip closed 9.45% down at R19.65.
?The industry is in very bad shape. I have spoken to the finance minister to have a word with banks (for supporting Kingfisher). We want all carriers to fly,? Ravi said.
Sources said talks between the finance and the civil aviation minister took place after Mallya spoke to them seeking help to get funds from the banks at low interest rates and other such support that the government is looking at offering Air India. Sources also said that Mallya has asked for three months? credit for fuel supplies from oil marketing companies. IOC, HPCL and BPCL have withdrawn supplies on credit and asked the airline to pay on a daily basis for fuel.
Kingfisher, which posted losses of R1,027 crore in the last fiscal, has a debt of R7,057.08 crore.
Meanwhile, some 50 pilots and cabin crew of the airline did not turn up for duty by reporting sick and over 40 flights were cancelled across its network on Friday, leading passengers to travel by other airlines by paying higher prices as the cancellations have led to higher fares in the spot market.
Officially, the company maintains that it is not shutting down but only minimising losses by flight rationalisation . CEO Sanjay Aggarwal claimed: ?We decided to reduce frequency in some of the routes where we had multiple flights like Delhi-Mumbai or low passenger load like Nanded-Mysore.?
According to Aggarwal, this exercise was part of a route rationalisation to improve profitability and revenue productivity of the flights On pilots and cabin crew quitting the airline, Aggarwal said that it has not happened suddenly.
“There is a process of natural attrition. Pilots and 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 our rolls now,” he said.
The company is in further trouble because some firms that have leased aircraft to it now want to cancel the lease because the airline has not paid for them.
Further, as reported by FE earlier, the Delhi and Hyderabad airports have also decided to put the airline on a cash-and-carry basis for usage of airport as the company owes them dues worth Rs 90 crore.
The company is also likely to face the ire of aviation sector regulator Directorate General of Civil Aviation (DGCA) for resorting to mass cancellation of flights without informing it.
“If they (Kingfisher) have no plan of operation, slots would be redistributed to other carriers,” DGCA head EK Bharat Bhushan told FE.
Meanwhile, the possibility of a bailout by the government drew sharp criticism from BJP leader and former finance minister Yashwant Sinha, who said there was ?no case for a government bailout for Kingfisher. We cannot support such a step.?
Congress spokesperson Manish Tewari said it remains to be seen whether in a market economy the government will walk the extra mile to bail out a private company or allow the shake-out to take place and the fittest to survive.
Industry analysts, on their part, blamed Kingfisher’s model for its plight. ?Kingfisher Airlines tried to expand with Air Deccan, which I personally feel has not helped them,? said Vishwas Udgirkar, senior director from consultancy firm Deloitte India. ?Very early after their entry into the aviation business the market slowed down. Also their cost structure was higher than their fares.?
The airline tried to position itself as a premium product but could not charge that premium which added to their costs, he added.
?The fact that people have moved away from business class to low cost also hasn’t helped them.?
IndiGo, on the other hand, has a different business model from the others, Udgirkar said. ?They have never tried
to deviate from their core customer base. Their focus on customers has also helped them develop loyalty of passengers towards them.? Jet Airways has performed so well because they have had a first mover advantage.
?They have managed to survive even though they are present across all segments primarily because of the brand re-call being one of India’s first private airlines,? he said.