Corporate Jan 1, 2013
By R Jagannathan
Kingfisher Airlines' permit to fly expired yesterday as the management failed to come up with a convincing plan to bring in the necessary funds for a viable revival.
To be sure, licences can always be renewed. In the Kingfisher case, it has two years in which to seek a renewal, but the spin the management is trying to put on it clearly suggests that it lives in La-La-Land. One wonders why the DGCA even takes the management seriously.
The statement yesterday made light of the fact that it has lost it permit to fly: "Despite the impending expiry of its licence tonight (Monday), there is no cause for concern as the regulations permit licence renewal within two years of expiry. Kingfisher Airlines is confident of securing approval from the DGCA on the restart plan, licence approval and reinstatement of its AOP." (AOP is the airline operating permit).
Not so fast. There are five reasons why Kingfisher can never fly, and even if some money is found, it should not be allowed to fly.
First, the airline has debts of Rs 8,000 crore and losses of a similar amount. There is no earthly reason why any investor would take up a Rs 16,000 crore liability voluntarily unless he has a death-wish. Talk of Etihad coming in makes sense only if Vijay Mallya takes his debt off Kingfisher's balance-sheet; Etihad won't take on losses and debt.
Second, Kingfisher owes money to almost everybody-from banks to airports to oil companies to employees. None of them will allow the airline to fly without being paid off first. So unless Kingfisher comes up with a detailed payment plan, trying to bring in a little money just to allow some planes to fly will not be acceptable to anyone.
Third, the lenders, unless politically arm-twisted, will seek to get back what they can from the collateral they hold. Most of the collateral is pledged shares of Mallya's liquor companies-but this won't be released without Mallya giving them some money. Mallya's reluctance to let Kingfisher die peacefully is probably because he wants to rescue some of his shareholdings in the liquor companies.
Fourth, with every passing month, the airline's liabilities will only rise as interest costs on the loans keep rising. This means with every passing day, Kingfisher is simply unrescuable. Unlike Air India, there is no taxpayers willing to fund losses indefinitely.
Fifth, assuming a miracle, and Kingfisher's debt of Rs 8,000 crore is off the airline's books, the airline will have to keep fares low for several months to attract passengers again. But Kingfisher's competitors are not going to sit back and let the airline take their business away. They will match the fare cuts. This means the first few months of flying again will bring in more losses for Kingfisher.
For every sensible reason, Kingfisher should be allowed to Rest in Peace. If Mallya won't let it, the bankers and the Directorate General of Civil Aviation should ensure that.