Kingfishers were never meant to Fly

Much like the bird, with whom the airline shares its name with, it is known for its flamboyant colours and ways rather than its flying. Kingfisher Airlines now finds itself deep in the red and in a serious lurch. It has cancelled over 200 flights over the span of a week and is absolutely struggling to handle business, as 100s of pilots quit the entity. The owner, the infamous Liquor Baron, Vijay Mallya has called for a government bail-out to help the airlines get back into the skies and resume regular business. Should they be granted this bail-out? My answer is no. Why should a private airlines with apparently no impact on Indian economy be saved by Government’s intervention, is perhaps not so obvious, but a glance at facts, will expose the ugly nexus between the Ministers and Corporates to benefit each other.

 

The now debt ridden Air India, formerly both Air India and Indian Airlines, was a pair of relatively successful airline companies. Both companies were performing quite well and slowly turning the profits frm the red into the green. In 2006, they had only a combined loss of 680 crores and were on their way to making a profit. Little did they know that they were in for a boxing match with their hands tied around their back.

 

Indian carriers have been bound by a rule that if an airline is less than five years old, it could not be allowed to fly international. The rule was to prevent Jet Airways from newbie competition, whose owner NareshGoyal is known to have “close terms” with Praful Patel. The controversial NeeraRadia audio tapes leaked by the Outlook magazine have referred Praful Patel as a “Minister for Jet Airways” and “Now a Minister for Kingfisher Airlines”. Vijay Mallya’s Kingfisher was not five years old, and he wanted to start International operations of Kingfisher, so he acquired Deccan Airlines, which was more than 5 years old, and he changed its name to Kingfisher Red, which was meant to be a low cost carrier. And, on the basis of this acquisition, he applied for permission to fly overseas, which was duly granted by the Civil Aviation Minister. Interestingly though, it was not low cost Kingfisher Red that started International flights, but the high cost original Kingfisher, which was not 5 years old. While this issue dogged the international scene, the Indian skies were not to be left untouched either.

 

The Civil Aviation Minister was known to have ultimate authority on deciding which flight goes where and at what times. If it was signaled to cancel a flight, the flight was indeed cancelled; if he wanted to reduce the passenger or load size, it would be done with no remorse. Needless to say, the talks about such actions had begun and instructions were issued to Indian Airlines managers to withdraw flights from specific sectors or change timings of existing flights so as to benefit Kingfisher Airlines. .In 2009 alone, Air India/Indian Airlines stopped operations on 32 routes which had load factors above 90% (i.e. these were among the most profitable routes). The sectors included Gulf and Singapore sectors. The AI/IC flights on Gulf routes were replaced by Kingfisher and Jet Airways flights at the same timings. And then came the final nail in the coffin of Air India/Indian Airlines – the decision of merger. The argument given was that this would allow an entry into the Star Alliance which would be the silver bullet to end all of the national carriers problems. However, facts show that this was a statement to only protect the decision and not the reason.

 

Most bilateral agreement signed between India and other countries have specific clauses limiting the access to bilateral to 2 carriers on each side. So on a route like Chennai-Singapore, India had Air India and Indian Airlines operating under their separate AOC’s which meant that Jet Airways or Kingfisher  wouldn’t have been able to operate to Singapore even after they became eligible to do so! This means, if Air India and Indian Airlines are merged, there will be room for a NareshGoyal or a Vijay Mallya to fly their planes on those routes. And that so happened. The two government carriers were merged and the new Air India cut down its routes to let Jet/Kingfisher reap the profits. The reduction in flights was explained as route rationalisation even when both AI and IC had loads in excess of 80% on these flights! . Before the merger in 2007, Indian Airlines had a net loss of 280 crores and was on the verge of coming out into full profitability, having already stabilized operational profits on over 90% of its route network. Air India, had a loss of around 400 crores: this meant a combined loss of around 680 crores, with the situation rapidly improving for both. Within three years of the merger however, the losses of the combined carrier have skyrocketed to 16000 crores.

 

These losses are largely due to the debt servicing of loans to help pay for a new fleet of planes. Reports estimated the no.of planes required to be 67, however an order for 111 carriers were placed by the Civil Aviation Ministry. It could bamboozle any sane person to think of how an airline with a turnover of a little over 7000 crores could place orders for aircraft costing over 32,000 crores, when the interest burden per year alone would come to 6000 crores! This means, Air India, is shelling out over 8 croresper day in interest payments alone!A reasonable explanation appears to be that the order would put Air India into permanent debt which would assure its extinction, and when the airline goes bankrupt, its brand new aircraft can be picked up by private players at throwaway prices.

 

So right now there has been a change in the civil aviation ministry and Kingfisher doesnt have the same amount of backing as it used to. They now struggle to get things their way. This apart from the fact that the aviation industry is rather risky affair. It is a globally a poor industry with very low margins, if any. Anyone who gets into the industry knows exactly what to expect. Strangely, people might have noticed that the promoters of these companies do surprisingly well, despite the poor performance of the cos themselves. Clearly, there is some sort of incentive for them here. Maybe its black money. Maybe its lot of it. Maybe this is why the bail out package shouldnt be given.

 

Giving a bail-out package now will signal more weakness from the government. It will show how the corporate honchos can arm-twist the country’s superior body into helping them no-matter what. The UB group has enough resources away from KF Airlines to manage financial issues. If it leads to the destruction of the wealth of Mallya’s cash cow, his liquor company, so be it. Id rather the govt concentrate on issues such as solving the red tape-ism hindering growth for the profit making corporates of the country or doing something about the bloody inflation and rupee slide.

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