Why can’t the Indian government bailout Kingfisher? They tried doing it for Satyam
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Why can’t the Indian government bailout Kingfisher? They tried doing it for Satyam

Kingfisher Airlines, the king of the good times, is now in some terrible times. Its pilots are resigning, its bankers are knocking and its customers are cursing. Kingfisher no longer stands for its lavish flights or the courteous air hostess. It now stands for “you are lucky if you fly”.

Kingfisher has reported a loss of Rs. 444.26 crores for the quarter ending Dec 31, 2011. If we count the tax arrears its total loss accounts to 657.64 crores for that crore. It registered a Rs. 1027 crore loss for the financial year of 2011. Kingfisher registered a Rs. 1647 crores in 2010. To  cut a long story short, Kingfisher airlines never made profits since its inception in 2005.

Kingfisher Airlines operates in an industry where other players haven’t made any profits either. Jet Airways and Spicejet have reported losses for the quarter ending December 11, 2011. Government-controlled Air India is a different story because it’s government owned. The airline industry in India by design needs 80% occupancy to stay afloat. Airliners worldwide need just 70% occupancy. Much of this is attributed to the higher jet fuel costs.

Kingfisher, which has 64 flights in its fleet has submitted two of its flights voluntarily to the lessor. Two of the flights were already de-registered as it didn’t pay the dues. Now it only operates 12 flights all over. It has cancelled all the scheduled flights flying outside of India to Bankok, Singapore, Khatmandu and Dhaka. Kingfisher has canceled 50% of its flights flying out of the 6 metros. In total it has canceled 80 of its 240 scheduled flights or 35% of the total flights.

Cancelling so many flights without prior intimation is a violation for an airliner as per DGCA. Good thing is it’s not its first violation. Kingfisher has so far not paid its service tax, tax deducted at source, not paid airport authorities of India, not paid salaries to its employees, not paid to leasing firms , not paid oil companies and still owes money to road transport companies.

When you continue making losses and try to run a premier airliner, then you are bound to mount a truckload of debt. That it did. The current debt could be much higher but as of September 30, 2011, Kingfisher Airlines debt is Rs. 7500 crores. A similar amount of money which went missing from Satyam Computers books in 2009. Why am I mentioning Satyam here? They are not linked stories but there are definitely parallels.

Such a plight of a company in India is bound to get the government attention. Ajit Singh, Indian aviation minister had this to say. The minister has made a lot of statements but this is the one I liked:

Government can’t go around asking banks to lend money to a private company.

Is that so Mr. Minister?

 

Now comes our Satyam connection. Flash back to the year 2009 and you all can remember what happened with Satyam Computers, the poster child of entrepreneurship for the state of Andhra Pradesh. Its then CEO Ramalinga Raju has sent a letter to the stock exchanges that he has inflated profits to the amount of Rs. 7500 crores to keep investors happy. That was total hokum. The money was swindled and the company was thrown into oblivion. Remember what the government did?

It assembled a board with star players in it. Deepak Pareikh, Kiran Karnik, C. Achuthan, Tarun Das, TN Manoharan and Suryakant Bala Krishan Mainak. The star board spent sleepless nights to solve the Satyam case. Tech Mahindra bought Satyam and renamed to Mahindra Satyam. Government gave a happy ending story for India’s crown jewel industry.

Government, in Satyam’s case, didn’t necessarily pump in money but it brokered a deal. The government’s comment then was:

Satyam was unique.

I’m sure it is. It is an aberration in an industry which is known for its profits. It’s common knowledge that the profits weren’t inflated but they were swindled. Satyam was unique. More than that, it’s a scam.

May be Indian government responds to private company crisis only when a scam is involved.