Why is the government eager to bailout Kingfisher instead of Air India?
Moneylife Digital Team 11 November 2011

Lenders have already burned their fingers with the 'king of good times' carrier and yet, the government is eager to bailout the debt ridden Kingfisher for the second time

Kingfisher Airlines, which won the Skytrax award for India's best airliner in 2011, is again facing turbulence and instead of landing. There are efforts from certain quarters to keep the debt-ridden airline afloat. According to reports, Aviation Minister Vayalar Ravi indicated that the government might speak to lenders, especially state-owned banks for a possible bailout of the Airlines. Mr Ravi had been quoted as saying that he had spoken with Finance Minister Pranab Mukherjee and Petroleum Minister Jaipal Reddy, after Vijay Mallya, the flamboyant owner of Kingfisher sought government's help.

The question is why the is government eager to help bailout Mr Mallya and his debt-ridden Airlines for the second time, when its own national carrier, Air India is still not out of trouble? About a year ago, 18 lenders agreed to restructure Kingfisher's debt of Rs8,000 crore by cutting interest rates and converting part loans into equity shares. Lenders, including State Bank of India (SBI) and ICICI Bank converted debt of Rs1,400 crore into equities at around 60% premium at Rs64.48 per share to Kingfisher's market price of Rs39.9 a share in April 2011.

Considering Kingfisher's closing price of Rs19.85 per share on Friday the lenders already have lost Rs44.63 per share in the company. And yet, the politically well connected owner of the company is seeking government bailout.

Over the past four days, Kingfisher have grounded over 120 flights forcing the Directorate General of Civil Aviation (DGCA) to issue a show-cause notice to the carrier for not taking its prior permission to curtail its flight schedules. Kingfisher's chief executive Sanjay Agarwal told PTI that the entire exercise is part of its route rationalisation to improve profitability. “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,” he said.

According to reports, on Thursday, Kingfisher operated only 64% or 269 flights out of the 418 flights of its winder schedule allocated by the DGCA. Kingfisher’s action has caused immense heartburn to thousands of passengers as following the flight cancellations; they had to pay a premium of 20% to 40% to travel by other airlines. The cancellation of flights and alleged quitting of around 130 pilots from Kingfisher may be the airlines’ way to create some pressure on the government for a bailout package. However, the question remains, why the poor traveller had to suffer time and again even after paying a premium on Kingfisher ticket?The airline has suffered a loss of Rs1,027 crore in 2010-11 and has a mounting debt of Rs7,057.08 crore. Since starting its commercial operations in May 2005, Kingfisher has yet to see profit on annual and total cost basis. (see the table, courtesy Wikipedia)

Earlier, in July as per the requirements of the debt recast package, United Breweries (Holdings) Ltd and Kingfisher Finvest Ltd, both founder companies of the Airlines had to pledge their entire stake with some of its lenders. While United Breweries (Holdings) had a 40.1% stake Kingfisher Finvest had 12.75% stake in the carrier, which they had to pledge with lenders. During the same month, state-owned Hindustan Petroleum Corporation Ltd (HPCL) stopped fuel (ATF) supplies to Kingfisher Airlines for about two hours owing to the non-payment of dues. Another state-owned oil marketing company, Bharat Petroleum Corp filed a case against Kingfisher for recovery of its dues of Rs245 crore. Even after an order by the High Court to pay whole amount in one go, Kingfisher paid the dues in instalments.

While lenders are still crying, the Airlines and its promoter, however, can be seen in the limelight all the time. While, it desperately needs a sponsor to survive, Kingfisher sponsored Force India, a formula one racing outfit, owned by Vijay Mallya.

While competitors like Jet Airways and IndiGo are running successfully, why someone like Kingfisher need help all the time? Does it have to do something with the incumbent management? We can't says given that the same promoters are running a very successful liquor business. Anyway, whether Kingfisher would remain afloat by taking government's help for the second time would be worth watching for the sake of good times.


1 decade ago
Why should Government Bail out King Fisher Airlines. It is really funny that the Prime Minister and all the Minister
take Air India plane for their Joy ride throught the world (God knows whether they are properly billed for by Airlndia
for VIP operations) and still thinking whether to bailout air india or not and see how cancellation of King Fisher flights operation, the Prime Minister (like a spokesman for KF) comes out with a statement calling for helping. This show how corrupt this government is. Moreover when open sky policy was announced, there was no level playing field offered and our
beloved ex civil aviation minister robbed all the lucrative routes, deliberately to facilitate these private carriers and air india was used for evacuvation of indian citizens who have migrated to foriegn countries, for earning their doller income when during crisis. Government instead of bailing out KF, should declare the Airlines Industry as service industry (just like Railways) and save Air India and take a decision not to allow anymore private players in Indian Aviation space. But will they do that is a million doller question?
1 decade ago
1 decade ago
Let the God help him not the Government.

Some years ago Mallya has gold-plated the roof of the sanctum sanctorum of Sabarimala Hill Temple, Kerala. This offering attracted criticism, but the Kerala High Court allowed him to donate 32kg of gold and 1,900kg of copper to gold-plate the temple roof. It reportedly cost him Rs 18 crore.

I am a religious Hindu. However, I think it is sin to do such things in a temple. God doesnt need gold especially from a person who earns money by selling liquor.
nagesh kini
Replied to Govindan comment 1 decade ago
Each new aircraft joining the KF fleet has to make a pilgrimage to the Lord of Seven Hills first.
It is sadly said that Man proposes but God deposes and unfortunately this happens in the case of the King of Good Times when even God can't help him!
1 decade ago
I wish to have a bailout from the government. I have lost my job, I have a debt to re pay. I have my family to look after. I want the government to bail me out too.. since all are equal in this demoCRAZY.

Replied to Kumar comment 1 decade ago
HAha, good one
1 decade ago
It is absolutely unfair for Govt to intefere with a businessman who has squandered his wealth on girls and parties. Govt should keep its distance from this company at any cost. Please raise your voice against any help from Govt which stands for the just and innocent citizen of India. Visit http://www.facebook.com/#!/pages/Kingfisher-bailout/157317181032304
Shadi Katyal
1 decade ago
It is not worth to compare Air India with KF as AI is not fit to fly with number of employees per aircraft, it is a PSU and like rest of PSU, it can never pull itself from the strife of unions and rude behavior of her staff. While the planes go empty but AI office tells u sorry no ticket.The rudeness of staff knowing being now Babus of the GOI, they cant be fired or disciplined as they will go on strike. Why has GOI civil aviation has filed to find that all foreign air lines carry 80% of foreign travelers and why AI has failed.Mr patil while being Minister bought planes but never knew the shortage of pilots and union power but he got rich and thus who cares for the nation.
KF is private and if the banks bought the share , it was a gamble but why is KF not utilising full schedule and why premium on its tickets?
Maybe the banks feel that either KF will revert to earning or maybe sold to another airline.
Replied to Shadi Katyal comment 1 decade ago
Hello SK!!! first remember a private airline company comes to business to make a profit. Their only purpose is that, nothing more. A governments duty is to provide level playing firelds for all airlines.. if JEt and Indigo is able to perform in this environment why is KFS crying. secondly AI is a legacy started by Tatas, It was taken over by the govt and then misused. Till 2005 they was no loss. It all started after the Gr8 Patel along with the Pawar came into picture. they looted and left it bleeding to other industries. With regards to rudeness of the staff. it is very much a part of the govt PSU culture. why expect anything diffrent from AI. do u expect anything from a SBI. you cant change them.

Capt Gopinath started the budget airline concept and was trying to breakeven. But that was not in the intrest f KF and Jet, who were full fare airline, they pulled a trick and finished the budget concept. Now u only have a AI express which has a fixed fare even in this times. all otheres have jackd up the prices to unbelievable levels (make hay while the devils rules) imagine if there was no check with a PSU airline they would al be looting. Secondly there wont be any flights to 2nd and 3rd tier cities. because they are totally loss making.

It is very easy to say SHut it etc.. ramifications are quite serious.. Railways are now loss making again. can we shut that too?? PSU oil companies are loss making . and reliance is not selling a drop of petrol or diesel to the public. Can you find any petrol pump belonging to the pvt refiners??? regarding the employee ratio. remember they have all their employees in their roles. where as Singapore or a Malaysia airline has them in their subsidy. so they are not reflected in the total numbers.
Replied to Shadi Katyal comment 1 decade ago
Hello sir,stop such false propoganda for heaven sake.what airindia, as a national carrier has done for this nation for last 75 years cannot be compare with anything other airlines,ok.As far as staff per aircraft is concern,its government policy on employment,so please stop this bias attitude towards your national carrier.
Replied to Shadi Katyal comment 1 decade ago
nagesh kini
Replied to Shadi Katyal comment 1 decade ago
I'm inclined to agree with Mr. Moorti and Sanjay. Who valued the shares Rs.180 when it was worth a tenth to convert the Secured Loan into an unsecured equity? The bail out amounts to sinking more of public money. Why are the so-called cash rich promoters not pumping in their funds, after all they share the same brand name?
a v moorthi besides TIHAR
1 decade ago
Dr. (purchased - not earned by academic achievement) Vijay Mallya is in the business to distribute feel good factor. Why blame him for the misery of King Fisher when wise people from SBI, ICICI agreed to convert the loan to equity because Mallya's CFO and other would have shown good times to the top brass of SBI, ICICI etc now if these Banks don't offer further credit line they will be left holding illegitimate baby (NPA's) . Long live the likes of Vijay Mallya, Niira Radia etc who services had to be utilised by even a honourable business house like TATA
1 decade ago
he is ruining SBI also , he compelled them to buy shares at premium at rs 180 where as it share price was only Rs 19.89 but why due to the the influence , and pressure of Vijay as he is MP too , loans were converted into share of rs 190 each where as share price was only 19 , most of intrest was waived, and % was lowered much , why such prev ledges to king fisher that too from common man banks and bailout from common man tax money , so that Vijay mallya could spend for night parties , yacht ,women , calenders , for his extravagant luxury from common man money and bank which he common man from village to cities depend upon , We again will pay prices for Vijays luxury , We can Bailout for Vijay mallyas Luxury ,parties and dont want to ruin our bank let vijay mallya use his own billion dollars to save it why he is asking our tax money , SBI has suffered loss of 143 crores because of mallya why r they spending on him so much And no bailout for common people they r left on their own , increase in fuel prices first bailout common people Pranab told while increasing oil price that hard steps r to be taken then why not for kingfisher ,let them face on there own ,if Govt gives bailout it means the Govt is only for corporate s not for common people He is building 30 floor opulant high rise in bangalore, wants to buy Brindavan hotel, raze it and build ultra luxury house, his son can f*** around girls, he can own expensive horses, has time to go to parties


1 decade ago
The motives of the people in government is suspect.
1 decade ago
KF is a badly managed airline that got airport space by displacing IC in Mumbai and elsewhere. Liquor gifts keep airport authority staff and others happy. Their schedules closely follow IC, as was their Airbus aircraft purchase. They got the slots where they wanted. The lenders were obviously compelled to convert their debt at Rs.68 when prevailing mkt price was Rs.39 and they knew it will go to single digits even with all their acumen, but they had no go. It is not surprising that MoCA wants to help them. Reasons are just below the surface to fathom. One thing is they would have gotten away by their glitz and palming their business to another unsuspecting global or Indian investor, but the quality of management is untrustworthy, and everyone saw thru their game.
1 decade ago
If govt is ready to help Kingfisher this time next time other private airline may ask for this kind of help. Kingfisher has other profitable Breweries business. Why cant they utilizes it to brings up the Airlines. First Government must put their effort to bring Air India to normal then help other airlines.
Replied to Pratap comment 1 decade ago
I fully agree with this gentleman,a man with sense of humour.wen KF was in profit,or for that matter,any other private airline, did they share their profit with government?now why they need governments bailout package?On the contrary,it was airindia,whoes profit in last 75 years was utilised for nation economic growth.Its duty of Government to look into airindia messup on priority bases.
Free Helpline
Legal Credit