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Corporate Sep 4, 2012

Resurrecting Kingfisher: Larger-than-life fantasy?

By Sindhu Bhattacharya

New Delhi:The Ajit Singh-led Civil Aviation Ministry has made it clear several times that the Government will not be seen asking Kingfisher Airlines to close down unless there is a safety concern or until the airline's fleet size falls below five aircraft.

But from the outlook Chairman Vijay Mallya has given for his airline in the annual report for 2011-12, it sure appears that Mallya is not planning to wind up this business. Instead, he appears keen to bring it back to its original glory!

"Your company will take a phased and pragmatic approach to re-induction of capacity as well as further market expansion. The focus will be on maximising the nascent potential of the domestic Indian market and capitalising on strategic international routes," Mallya said in the annual report. Not only has he not abandoned plans for expansion, it is clear that the airline hopes to restart international operations too.

So is this a sensible approach or is Mallya's vision of resurrecting Kingfisher a larger-than-life fantasy?

From the outlook Chairman Vijay Mallya has given for his airline in the annual report for 2011-12, it sure appears that Mallya is not planning to wind up this business. Instead, he appears keen to bring it back to its original glory! Reuters

Official sources have told Firstpost that they have received many feelers from the airline suggesting that the government begins the process of asking Kingfisher to wind up, but the ministry has not bitten the bait. "Why should we ease him out of his misery and in the process leave thousands jobless? Kingfisher's continuation is in the interest of several stakeholders. Its not as if there are no operations, it is flying some aircraft and offering services on some routes," said a senior official.

He added that if there is a sudden withdrawal of capacity from the market, other airlines will immediately raise fares and further distort the market. "Let Kingfisher fly till it can. We will not close it down. Till now, we have not found any safety concern," this official added.

Kingfisher continues to face manpower issues with pilots refusing to fly on some sectors due to salary delays, leading to flight cancellations. From 67 aircraft (scheduled and non scheduled operations) it operated till November 2011, fleet was reduced to 55 by March 2012. And instead of flying 9 Airbus 320 aircraft and 8 ATRs - as it had promised in the summer schedule - Kingfisher is now flying only 6 A 320 and 5 ATRs. So fleet is down to just 11 aircraft. Headcount was already down to 5,696 in March from 7,317 in the previous fiscal but is sure to be even lower with continuous exit of pilots and other staff.

Also, Mallya has himself said in the annual report that as part of cost rationalisation, the airline has completely removed expat pilots from the A320 and ATR fleet (since expat pilots are paid more than Indians). Besides, the airline has optimised headcount of cockpit and cabin crew to fleet count. It has even begun to benchmark the number of meals which are put on each departing flight to control catering costs.

Kingfisher continued to focus on other major cost control initiatives too last fiscal. So the airline went on to reduce distribution costs, implement fuel optimisation systems and processes, improve aircraft utilisation, optimise headcount and re-negotiate general contracts in order to enforce cost competitiveness.

Then, not just pilots and engineers but even the airline's top management has begun to disintegrate. The Executive VP Commercial Manoj Chacko quit earlier this week and there are rumours about at least one more top level resignation being in the offing.

Manpower issues apart, Mallya has also acknowledged in the annual report that Kingfisher is now on a "member-elect" status with the Oneworld Alliance. Had Kingfisher managed to gain entry, its operations would have got a big boost.

With domestic operations severely curtailed, international operations suspended and no clarity from the Government on whether it will allow foreign airlines to pick up stakes in Indian carriers, what options remain before Mallya to keep Kingfisher afloat?

Diageo Plc is expected to pick up to 27 per cent stake in Vijay Mallya's United Spirits (USL) for a total amount of Rs 3,000 crore ($640 million), Firstpost reported on Monday. It also said that this amount would be used to pay off debts which have Mallya's personal guarantee, especially the ones extended to Kingfisher Airlines.

A consortium of banks which extended loans of Rs 7,000 crore to the airline is learnt to have told the management that if it needs fresh infusion of funds, then it should raise at least half of the Rs 2,200 crore it needs immediately to stay afloat. Perhaps Diageo may prove to be the knight in shining armour needed to rescue a dying Kingfisher.

by Sindhu Bhattacharya

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