The King of Bad Times

If you go by media reports alone, the Vijay Mallya-promoted Kingfisher Airlines is just a step away from bankruptcy. It had to cancel over 200 flights over the past few days while its pilots are missing and suppliers are demanding immediate payment. As a result, the airline has knocked on the doors of the Government for a possible bail out. Like the Air India/ Indian airlines mess wasn’t enough for the Government to battle. It would be just a matter of time before other private airlines like Jet Airways, Spice Jet and Go Air who are all making losses come knocking.

In my opinion, the Government must not bail out private airlines like Kingfisher whose biggest problem is the large size of $ 1.3Bn debt on its books. Major part of this debt was to finance the buyout of Air Deccan. This is a self created problem which must be tackled by the airline on its own. The airline’s immediate cash requirement is estimated at $200 Mn. This includes dues to the private airports, AAI, oil companies and other vendors. It would need another $200 Mn to be able to run its operations properly. The immediate problem that the airline is facing today is that GMR, which operates the Hyderabad and Delhi airports, has put the airline on “cash and carry” in Hyderabad. That means the airline can operate only if it pays the money upfront. Other vendors/ suppliers have also placed the airline on “cash and carry” basis which has resulted in the recent cancellation of flights.

The board of the airline is considering a proposal to cut debt by more than half by selling property, converting loans from its parent company into equity, and changing the terms under which it leases aircraft. The airline promoted by Mallya's UB Group, which owns United Spirits, India's biggest liquor company. The UB Group will also convert $135 Mn of debt into equity as part of the plan to pare debt. The airline would also approach its existing bankers for additional working capital financing to meet immediate commitments towards salary payments and dues to AAI.

The Government must stay put on this issue as setting a precedent by helping in a bailout of one private airline would be dangerous for the future. As Mr. Rahul Bajaj, Chairman – Bajaj Auto, rightly said "If it's a free market economy, those who die must die."