Kingfisher Airlines finally got what it wanted — a lifeline. Apparently, some banks have decided to wade in and help the financially gasping airline tide over its immediate crisis.
However, it’s all still very hazy because most media reports offered conflicting versions of what kind of aid is being provided and more importantly, who is providing it.
While Mint reported that the carrier would get Rs 200 crore from relatively smaller banks in the 13-bank consortium that had earlier lent to Kingfisher, The Economic Times and Hindustan Times said that SBI, the biggest lender in the consortium, would turn benefactor once again for the stricken airline.
According to the SBI-throwing-a-lifeline version, India’s largest bank is offering about Rs 1,500 crore in various forms: a first tranche of Rs 700 crore will come as short-term working capital to meet the airline’s immediate requirements for
If bankrupt do business in India? Reuters
paying salaries, taxes and other payments. Another Rs 500 is expected to be provided as bank guarantees. Loans worth Rs 200 crore will be rolled over and about Rs 150 crore will also be provided as guarantees to the income tax department.
SBI’s exposure to Kingfisher Airlines after the fresh bailout package will total Rs 3,100 crore: Rs 1,457 crore in debt plus Rs 182 crore in equity earlier, plus Rs 1,500 crore (fresh bailout).
Indirect bailout?
It begs the question: why is SBI, which in the past has been openly reluctant to lend further to Kingfisher unless the promoters brought in fresh equity themselves, rushing to Kingfisher’s rescue?
To be honest, it feels suspiciously like the public-sector bank has been arm-twisted into providing further funds to Kingfisher by the government — one day after Aviation Minister Ajit Singh declared that no single airline would receive a bailout.
Will the money help Kingfisher? Sure it will — to keep surviving at a hand-to-mouth level. Will it help the airline, which has been cancelling flights left, right and centre, get up and fly profitably? Probably not.
There is still no clear road map for growth for Kingfisher from Mallya and team. All they are doing right now is trying to survive another day. For now, it’s mission accomplished.
It’s a more troubling situation for the banks concerned, who have to choose between a rock and a hard place. Stay stubborn and refuse to give the airline any more funds, and Kingfisher’s accounts will turn into bad debts for sure, something they can ill-afford.
However, if they lend more to the airline, there’s no guarantee that there will be a turnaround, and could amount to throwing good money after bad.
Sadly, it seems like even if the airline is ready to die (commercially), it might be continually kept on life support, primarily because politicians don’t seem to have the stomach to accept one of the basic principles of market economics — only the fittest survive.
India: best place to do business
As a Mint ‘quick edit’ notes (with some sarcasm, we might add), “India is the best place in the world to do business,” because the government seems ready to go to any lengths to keep failing private-sector entities alive. “Just what is it about Kingfisher that it has to be kept afloat?” the edit asks.
Perhaps the fact that the promoter hails from Karnataka. At least, that seems to be reason enough for Corporate Affairs Minister Veerappa Moily, who on Tuesday came out in support of the airline saying, “Of course, he (Vijay Mallya) has met me because he hails from Karnataka…That (Kingfisher) has to be saved. He has to work out a strategy that will be acceptable to the Finance Minister and his ministry. He has a vibrant airline. And it has given excellent service…I wish him well,” Moily said.
No mention of the fact, however, that vibrant airlines should be making money, not borrowing from the government — or banks — to keep themselves afloat.
Mallya, himself, is in no mood to give up. On Tuesday, reacting to the current round of Kingfisher’s woes, he said: ““Why should we give up as long as we get help? Help is not bailout. We have asked banks to consider our proposal to provide more working capital.”
Well, for an airline that has made no profit since it was launched in 2005, help seems aplenty — at least from the government.
