Kingfisher lawsuit against IAE shows Vijay Mallya's desperation

by Vinay Bhaskara and Devesh Agarwal

Earlier this month, defunct Indian carrier Kingfisher Airlines, which has been grounded since 20th October, 2012 when the Indian regulator, the Directorate General of Civil Aviation (DGCA) suspended its flying license, filed its annual report for fiscal year 2012-2013.

Instead of focusing on finding a way to pay off the nearly Rs. 7,000 Crore debt the airline owes to a consortium of lenders led by the State Bank of India, Kingfisher used the annual report as a mouthpiece to announce a lawsuit filed in the City Civil Court at Bangalore against engine manufacturer International Aero Engines (IAE) for $235 million (damages of $210.4 million plus $24.6 million in punitive damages), claiming that the IAE V-2500 A5 engines used to power Kingfisher’s once 32-strong fleet of Airbus A320 family aircraft were “inherently defective, both in design and manufacture.” The Kingfisher annual report says.

United Breweries (Holdings) Limited has filed a suit in the City Civil Court at Bangalore against International Aero Engines AG, its shareholders / joint venture partners and your Company being O.S. No. 6406 of 2012, alleging that the IAE V-2500 A5 engines supplied to your Company were inherently defective, both in design and manufacture, and has claimed damages of USD 210,400,000 plus Rs. 1,621,000,000 (aggregating to approximately $24.557 million as per the current exchange rate of approx Rs. 66  per US Dollar) and has reserved liability to claim further damages. No relief is sought against your Company in the said suit.

This lawsuit smacks of desperation on the part of Kingfisher and its management, as the carrier continues to flounder.

Considering that it did not operate for most of the year, if Kingfisher still managed to find enough cash to pay CEO Sanjay Aggarwal US $591,000 in an annual salary, clearly demonstrates a carefully managed business strategy will allow the airline to slowly pay off debt without resorting to doomed strategies such as this lawsuit.

Kingfisher restart would be a strategic mistake

Kingfisher also continues to pursue the flawed idea that the carrier should “restart” operations with up to 20 aircraft, or that the carrier will make back the money by selling itself to an investor. This is a mistake. Re-launching operations in today’s Indian airline industry would be a tragic mistake. For starters, the Indian macroeconomic picture is very poor; the Indian Rupee has continued to decline and growth projections for the fiscal year have slipped beneath 5%. This has driven demand for Kingfisher’s premium style product lower than when Kingfisher shut down, and that too up against a somewhat re-vitalized Air India, a re-capitalized Jet Airways, a market leading IndiGo, and a soon to arrive behemoth AirAsia India. 

Moreover, India’s other airlines have committed to firm orders of at least 93 current generation narrow body aircraft, as well as 272 next-generation re-engined products (which doesn’t even include an expected re-engined order from low cost carrier (LCC) SpiceJet. This doesn’t even include the fleet of well-capitalized startup AirAsia India, who we project to grow to a fleet of between 10 and 12 Airbus A320s, and regional startup Air Costa, who is supposedly on the verge of launching operations within the next two months. And all of these orders and startups have locked Indian carriers into domestic capacity growth, even with the persistent demand weakness. LCCs have been flooding major Metro markets with capacity (see IndiGo driving out Jet Airways with a massive capacity dump in the Bhubaneswar market as just one prime example).

Even at the peak of the Indian market, Kingfisher as an airline was not profitable and the one part of their network which was profitable, the regional ATR network in the South, has been co-opted by LCC SpiceJet using a fleet of Bombardier Dash 8 Q400 turboprops. SpiceJet already has 15 Q400s in its fleet, and is working to secure financing to grow the fleet by another 15 frames. For example, one of Kingfisher’s most profitable routes pre-shutdown was the trunk route between Bangalore and the industrial Karnataka city of Hubli, but Hubli is now a SpiceJet monopoly with service to five destinations using the Q400s. And Air Costa is due to start operations, muddying up the waters with even more capacity.

One cannot blame Kingfisher’s investors for the idea that if only Kingfisher were to be re-started and/or sold, they will make back their money over time. This sort of playbook is present all over the global airline industry, most notably with US LCC Virgin America whose investors have continued to swallow persistent losses over the past six years in hopes of making their money back via an initial public offering. This would be a mistake in the Indian market, where the existing carriers are already struggling. SpiceJet, Jet Airways, and Air India have all hiked their fares by more than 25% in recent days to offset the rise in the Rupee, with GoAir and IndiGo expected to follow suit soon. Kingfisher re-launching into this environment would just be a recipe for racking up thousands of crores more, in further accumulated losses.

It is better to leave Kingfisher's aircraft rotting on tarmacs across the country where they could at least serve as a reminder to Dr. Mallya, how he, and his incompetent mis-managers, drove a great airline concept in to tatters.

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PHOTOS and Analysis: A new Indian start-up; Zexus Air?

by Vinay Bhaskara

A report in Ch-Aviation is stating that proposed domestic start-up Zexus Air, to be based at Delhi, is planning to acquire four Embraer E175LR regional jet aircraft (with manufacturer serial numbers [MSNs] 17000277, 17000287, 17000291, and 17000309), as per its application with India's Directorate General of Civil Aviation (DGCA) for an air operator certificate (AOC). The aircraft were previously with Brazilian regional operator TRIP Linhas Aereas, a subsidiary of Azul Brazilian Airlines, the Brazilian low cost carrier (LCC) founded by JetBlue's founder, David Neelman

Not much is known about the startup Zexus Air, except that it would operate on domestic routes, likely with a LCC business model. The carrier has not launched a website, and a quick scan of the airline's Facebook page reveals the following picture of a US Airways E-Jet with Zexus Air titles added via Photoshop or some equivalent. The unprofessional photo below does not re-assure anyone about the viability of Zexus Air's business plan, nor their level of capitalization at this present stage.

Image Credit: Zexus Air

Using Embraer E175 regional jets is a recipe for disaster in the Indian airline industry, thanks to discounts in airport costs for aircraft below a certain weight. These discounts, which apply to turboprops of the same size as the E175, are designed to promote service to Tier II and Tier III Indian cities. But as a side effect of the discounts, regional jet operations in India are simply economically un-viable. For example, regional operator Paramount Airways, who utilized a fleet of Embraer E-Jets, was decimated earlier this decade by competition from Kingfisher and Jet Airways ATR turboprops in the South.

Moreover, the Indian operating environment is anything but conducive to a new start-up airline. Demand is weakening thanks to a poor macro-economic climate, and the existing airlines are already locked into capacity growth thanks to massive aircraft orders. Moreover, seasoned LCC veteran Air Asia is soon to launch an Indian franchise, and even Air Costa, with a similar business model based around regional jets, is set to launch operations within a couple of months. Zexus Air, it would appear, is doomed from the start. 

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Opinion: Why are tax-payer funded banks going easy on Kingfisher Airlines loans recovery?

by Devesh Agarwal

The consortium of banks which lent vast sums of money to Vijay Mallya promoted Kingfisher Airlines seem to be making a mockery and charade of recovering almost Rs. 7,000 Crore worth of loans from the airline and its guarantors. The question is why?

As per a Mint report,

SBI, the leader of the creditors’ consortium, has the maximum exposure at Rs.1,600 crore to Kingfisher Airlines, followed by Punjab National Bank (Rs.800 crore), IDBI Bank Ltd (Rs.800 crore), Bank of India (Rs.650 crore), Bank of Baroda (Rs.550 crore), United Bank of India (Rs.430 crore), Central Bank of India (Rs.410 crore), UCO Bank Ltd (Rs.320 crore), Corporation Bank (Rs.310 crore), State Bank of Mysore, an SBI associate bank (Rs.150 crore), Indian Overseas Bank (Rs.140 crore), Federal Bank Ltd (Rs.90 crore), Punjab and Sind Bank (Rs.60 crore) and Axis Bank Ltd (Rs.50 crore).

On reading a recent Business Standard report it appears that the members of the consortium are "wondering" on their various legal options, even as they continue to hold a crucial 2.38% of shares in United Spirits Ltd. (USL) which was recently acquired by global major Diageo.

Equity shares in profitable companies are routinely pledged to lenders as collateral allowing the lenders to sell the shares in case of failure to pay the debt. If the shares are not encashed by selling, there is little point of taking these shares as collateral. Why are the bankers holding on?

Adding intrigue is the fact that in April the Bombay High Court rejected a plea from Mallya's primary holding company United Breweries (Holding) Ltd. (UBHL), and allowed the consortium lenders to sell their shares.

In addition to shares directly pledged, Mallya and UBHL who own shares in both of the UB cash cows. USL, and United Breweries Ltd. (UBL), have given guarantees to the lenders The former in his personal capacity and the latter in a corporate capacity.

The Business Standard report goes on to state the relative simple and easy manner in which banks can and should use these guarantees to recover their debts and shore up their own balance sheets.

According to Sajan Poovayya, managing partner of a leading law firm, lenders can file a summary suit action, as the process of enforcing guarantees is much faster through this route. Simultaneously, the lenders could also move the Debt Recovery Tribunal (DRT) and restrain the promoters from alienating their assets.

Again, why have these "public sector" tax-payer funded banks, stood by, while both Mallya and UBHL sold their shares in USL to liquor major Diageo.

Mr. Poovayya also states

“There have been many instances when guarantors’ assets have been encashed. It’s surprising that Kingfisher lenders have not yet moved on this. I am not sure of the reason for that,”

He is being polite and diplomatic. We might be tempted to say "the banks can still file a summary suit and enforce the guarantees". That unfortunately, is easier said than done. India is still reeling from the after effects of the Vodafone debacle. Queering the pitch for Diageo at this stage, after the deal is sealed, will seal India's reputation in the foreign investment market.

However, all is not lost. Mallya and UBHL own 37.5% of United Breweries Ltd. (UBL), the country's largest beer company, which has a market capitalisation of about Rs. 21,600 crores, thus making their shares worth over Rs. 8,000 crore. More than enough to cover the 7,000 crore debts of the airline. Via the guarantees, the lenders have recourse to these funds, but the question is why are these banks standing by?

Again the simple answer that would come to mind would be the enormous political clout wielded by Dr. Mallya. However, in the murky world where alcobev (alcoholic beverages) and politics meet, things are not what they seem.

The Kingfisher saga is too public that it can be buried by sheer political pressure, there has to be a financial hook.

A hypothesis for consideration.

With the governing UPA lurching from one scam to another, the economy is in doldrums. Alcobevs are a huge source of revenue, especially for the states. With control of almost 50% of the market, Mallya can turn off the revenue tap in a heartbeat. Alcoholics will suffer withdrawal symptoms, but the government will go in to shock.

In a subtle move, Mallya can dispute a few contentious rulings of the state excise authorities in court. The time taken to decide with the following appellate process and the resultant lack of income, will be a death blow to the finances of almost any state.

With elections looming, the UPA has already commenced adding more misery to the Indian economy with its populist schemes. Cash is required to fund these adventures in profligacy. The coffers are empty and the government's credit card is maxed out.

Another financial hook is the fact that alcohol and the slush funds within the industry are the lifeblood of political campaigns in India; and elections are coming. Should the banks make a move, and force Mallya to liquidate stock, control of UBL will go to current partner Heineken, who is a lot less likely to play in that murky alcohol fuelled world of politics.

Furthermore, this is a last cash cow, and hell will freeze over, before Mallya gives up control.

I welcome your comments and thoughts.

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INFOGRAPHIC: Airline-wise share of international passenger traffic, to and from India, 2011 to 2012

Based on a report in The Economic Times we have prepared this infographic showing the airlines' market share of international passenger traffic to and from India during fiscal 2011~2012.

The chart throws up some surprises. SriLankan Airlines and Oman Air feature on this list, but Singapore Airlines does not. Hard to accept? and where is AirAsia? Share your thoughts via a comment.

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Infographic: How much does Kingfisher Airlines owe to each bank

by Devesh Agarwal

As banks move to recall their loans to Kingfisher Airlines, below is an infographic showing the exposure of various banks to the airline. Click on the image for a larger view. You can also download the graphic, by right clicking once you click on the image.

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Defunct Kingfisher Airlines' Airbus A380 orders still active

by Vinay Bhaskara

Computer rendering of A380 in Kingfisher Airlines livery
Image Courtesy of  Malaysia Flying Herald

At its recent annual results conference, European aerospace manufacturer Airbus released a bit of shocking information.

Apparently, the ill-fated order for five Airbus A380s by now-defunct (though perpetually on the verge of “re-starting” in the eyes of chairman Vijay Mallya) Kingfisher Airlines is still active.

Said John Leahy, Chief Operating Officer – customers of Airbus:

“I have legally binding contracts with Kingfisher right now. We got deposits, we rescheduled the aircraft and it is probable at some point we will take the orders out… We certainly don’t want to get out [of this contract]. It [Kingfisher] is a good customer, operates an all-Airbus fleet. I don’t see a reason to give up [yet].”

I can of course think of several good reasons why Airbus shouldn't count on an A380 order from Kingfisher. Even if the troubled full service carrier manages a truncated restart within the next year, it will not be in a financial position to order the A380 any time in the foreseeable future. However, from Airbus’ perspective, since it already has the deposits on hand, it doesn't hurt to have an extra five orders on the books for the A380’s backlog.

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Indian Aviation Review 2012. Part 2: The airlines' analyses

by Vinay Bhaskara

As promised, here is the second part of Indian Aviation's 2012 review, with an airline by airline analysis of the events in 2012.

Air India

2012 was another banner year in Air India’s agonizingly slow death spiral. Whether it was yet more labor turmoil related to the still not completed merger with Indian Airlines, a botched Entry Into Service (EIS) for the Boeing 787 Dreamliner (though admittedly 2013 has not exactly been a banner year for the 787 thus far), or a will they/won’t they attempt at selling off a portion of the Boeing 777-200LR fleet, Air India once again set new records for mismanagement.

The 787 EIS, while botched, is still an incredibly positive step for Indian and global aviation. The 787 is currently plying select flights between Delhi and Tier 1 metros (Kolkata, Bangalore, Chennai, et. al) as well as international flights to Dubai, Frankfurt, and now Paris. Even with Air India’s relatively uncomfortable configuration (18J/238Y) and atrocious interiors, the 787 is still a step forward in terms of product quality (read our trip report and review here). And as the airline integrates more 787s into its fleet, hopefully its good onboard product (the meals in Economy are excellent) will become more recognized.

See our cabin photos and cabin video walk-through here.

Routes wise, the year was mostly maintenance of the status quo, though parts of the long haul network were temporarily dismantled during the pilot’s strike. Toronto – the loss leader of the long haul network might not be coming back, which is finally a sensible move from Air India’s route planning department. Air India has appeared to settle on Delhi T3 as its primary long haul hub, which is fine with as long as they stick to it.

The strike of course was a microcosm of the broader challenges facing Air India; over-entitled employees asking for even more benefits (some highly unrealistic) despite market leading compensation. But from a practical perspective, Air India needs to get the labour situation sorted out as soon as possible. There are several inefficiencies that arise from having two “airline(s) within an airline” and Air India can hardly afford to lose more money.

During the last third of 2012, the airline was goaded in to action by the Ministry of Civil Aviation, Mr. Ajit Singh. We have not been given financial statements for almost two years from now, but here’s a (not-so) bold prediction, while Air India lost thousands of crores in calendar year 2012, its losses will be lower than from the years before.

GoAir

On the whole, GoAir had a relatively quiet year, at least by the standards of Indian carriers. It added the 13th A320 to its fleet, and with only 7 more current generation aircraft coming, it is pursuing modest growth for the foreseeable future. On the routes front, it added Chennai to the network but was otherwise quiet. I wonder however at the order for 72 A320neos. It’s viability is heavily reliant on GoAir getting approval to fly international routes as well where there is less competition and more room for individual airlines to secure their own niches.

Of course the most important fact about GoAir is that they are profitable, as Bangalore Aviation exclusively revealed in an interview with GoAir CEO Georgio de Roni back in October. Ultimately, that is the only metric that matters in this industry, and the following quote from Mr. de Roni was music to the ears: “Yes, we have a more cautious approach to growth. We are exclusively targeting profitability and not really market share.”

IndiGo

With no publicly available financial and operational data available for IndiGo, it is hard to qualitatively evaluate the airline. However, the major trend was a decided shift towards international expansion. IndiGo as well pushed towards international flying, though with a slightly different strategy than SpiceJet.

After launching services from Mumbai and Delhi to Singapore/Bangkok in Southeast Asia (Mumbai-Singapore/Bangkok have since been terminated and replaced with Chennai/Hyderabad – Singapore) as well as to Dubai and Muscat, it instead focused its 2012 efforts on growing its operations on the heavily trafficked route(s) to Dubai, adding services from Chennai, Hyderabad, and Kochi. It also added Kathmandu to the network with service from Delhi.

However, there is some question as to the viability of IndiGo moving forward. Already, reports have emerged that IndiGo is not operationally profitable and that its finances are supported primarily by high revenue from sale-leaseback of its fleet of Airbus A320 aircraft. Notwithstanding a potential collapse in the sale-leaseback market for current generation A320s as next generation re-engined products enter the market; IndiGo will thus have to maintain its high rate of A320 deliveries to keep delivering profits. They currently have 68 orders for the current generation A320, as well as the (formerly) record-setting 180 A320neos on order. But the question for IndiGo becomes, how will they adequately utilize all of these new aircraft?

Already with just 62 A320s in the fleet, IndiGo has found it hard to find enough flying. Beyond capacity dumping on Metro routes, the list of routes in India that can handle A320s is pretty much saturated by LCCs already. International operations are pretty much IndiGo’s only venue at this point, with the Gulf being the largest market within easy range of the A320s. IndiGo can replicate much of Air India Express’ market to the Gulf, though the process of securing flying rights from the Indian government is sure to be a challenge. In our opinion, IndiGo thus made a strategic blunder in committing to too many mainline aircraft and not ordering a turboprop like the Q400 or ATR 72 for service to relatively untapped tertiary markets.

Jet Airways

The year for Jet Airways was more mixed. The airline restructured its operations and saw rapid fare growth in the second half of the year as Kingfisher fell apart. They also fully embraced the power of sale-leaseback and made some good product decisions including unification of their low fare brands, (long overdue) reconfiguration of the 777-300ER fleet, and replenishment of the regional fleet. The flip side of course, is that Jet Airways still lost money overall for the year, but there steps in the correct direction.


I am a big fan of the international network restructuring; the most notable changes being the elimination of Brussels-JFK, Chennai-Brussels, Delhi-Milan, and Mumbai-Johannesburg, as well as several cuts to regional international flights. In today’s high tax, high-fuel environment, it represents smart capacity management which is not exactly a strong suit for Indian carriers. The benefits have already been seen, as Jet’s recent quarterly results have shown a marked improvement in international yield and brought revenues more in line with costs.

The A330-300 was inducted at the end of 2012, and the choice of the A330-300 was a smart one. The aircraft has very low unit costs (cost/available seat kilometer) and is a good tool for routes that have a lot of visiting family/relatives (VFR) and leisure traffic in economy class, and limited premium traffic. Moreover, the low economy class unit costs are especially important considering the growing competition for economy class travel from MEB3+1 rivals like Emirates, Etihad, Qatar Airways, and Turkish Airlines, all of whom have very low seat mile costs.

Similarly, reconfiguring the 777-300ERs into a higher density configuration will drive down unit costs on the flights to London-Heathrow. The 10 abreast configuration is rather uncomfortable but it is a necessary evil in competing with the MEB3+1. Emirates also has 10 abreast seating in its 777-300ERs. However, Jet should have gone further and stripped the extremely heavy First Class product from its 777-300ERs, thereby allowing the aircraft to do nonstop India-US flights.

Adding the ATR 72-600s is a good move, whether for replacing the existing ATR 72-500s, or for growth to combat the steady expansion of SpiceJet’s Q400 operation and expand on less competitive regional routes. Either way, it offers improved technology and fuel burn over the ATR 72-500 and should help bolster the regional operations at Jet.

The move by Jet Airways to consolidate LCC operations under the JetKonnect brand was a good one, as it helped reduce (but not eliminate) the brand confusion surrounding Jet’s multiple brands and service levels. However, the actual integration process has been slow, and the brand clarity is still lacking. When Kingfisher fell apart, much of the Konnect capacity was quickly converted back to full service to help fill the premium capacity void so perhaps there is some merit to the idea in terms of product flexibility.

Sale leaseback helped bolster the finances for Jet, even leading to a profitable Q1 for fiscal year 2012-13. But in general, the financial performance left something to be desired. Hopefully 2013’s finances will show improvement for Jet.

Kingfisher Airlines

2012 was a horrific year for Kingfisher, with the airline getting itself grounded and its airline operating license not renewed.

The depths to which this once mighty airline has fallen was symbolised by the suicide by the wife of one of its many unpaid employees, citing financial troubles. All this while the junior Mallya was tweeting about cavorting with hordes of models in sunny sands.

The government is still awaiting a viable business plan from the promoters, which will see scores of vendors including airport operators, fuel companies, and employees getting paid.

We’d like to do due diligence to Kingfisher with a proper eulogy. However, we will wait to see if Vijay Mallya can pull a proverbial “rabbit” out of his hat and resurrect Kingfisher before we write that post. Stay tuned!

SpiceJet

As with Jet Airways, 2012 was a mixed year for SpiceJet. On the positive side, the carrier grew its regional Q400 operation by leaps and bounds with great success and launched and announced several international routes. However, once again SpiceJet struggled financially, posting one quarterly profit over the course of the calendar year. It also failed to secure funding for an expansion of its Q400 fleet which signals a degree of market skepticism over SpiceJet’s business plan.

The expansion of the Bombardier Dash 8-Q400 turboprop operation was a very beneficial step for SpiceJet. The Tier I Metro routes between Chennai, Delhi, Mumbai, Bengaluru, Kolkata, and Hyderabad are heavily saturated with low cost and full service competition, and even the routes between Tier I and Tier 2 Metros are starting to reach that tipping point in many cases. The best point of expansion thus becomes the tertiary and even quaternary destinations like Vijaywada and Pondicherry where SpiceJet tends to have a monopoly or at worst duopoly with a full service carrier. Initial loads and yields for the Q400 fleet were very strong, that too from the relatively weak market of Hyderabad. As the operation expanded, SpiceJet began to shift capacity towards stronger business markets like Bangalore, Chennai, and Delhi, and the Q400 operation continued to grow in scope and reach.

First SpiceJet Q400 leaves Toronto for India

The Q400 fleet has the benefit of operating under special rules from the Indian government including reduced fuel taxes as well as takeoff and landing charges (ostensibly to grow air service to regional airports), so the Q400 operation is certainly a strong performer in SpiceJet’s tepid overall finances. The full order of 15 Q400s is now complete, and while SpiceJet has options to purchase 15 more from Bombardier, unfortunately it cannot find financing for the next 15 deliveries, which it desperately needs to expand the regional operation.

Internationally, SpiceJet launched several new destinations and flights. It already operates to Dubai, Riyadh, Colombo, Male, Kabul, Kathmandu, and will launch services to Guangzhou in 2013. It was smart for SpiceJet to make its primary international base at Delhi, as this is the largest base of VFR and leisure origin and destination (O&D) travel most likely to use a LCC. Overall, international expansion is necessary for any of India’s LCCs to utilize their fleet given the saturation of domestic routes with enough demand to support 737-800 and A320 size aircraft, and the Indian LCCs have all committed to significant fleet growth.

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Opinion: The Etihad-Jet Airways-Kingfisher Airlines love triangle. Who should Etihad choose?

by Devesh Agarwal

Two days ago, two Times of India group newspapers, The Bangalore Mirror and The Economic Times reported UAE national carrier Etihad buying a 48% in financially disabled and grounded Indian carrier Kingfisher Airlines. The Bangalore Mirror may be a tabloid, but The Economic Times is no slouch when it comes to financial matters.

This went against the news of on-going and advanced discussions between Etihad and India's Jet Airways for a possible stake sale by the latter, discussions on which Vinay Bhaskara has posted an analysis.

Curiously, on Wednesday, in another report The Economic Times surreptitiously distanced itself from its own Tuesday report saying

There were reports on Tuesday in certain section of the media that Etihad would pay Rs 3,000 crore for a 48% stake in Kingfisher.

and the question on everyone's minds - what is going on with this love triangle of sorts? Etihad, the groom, is being wooed by two brides, both of whom need Etihad's money; one for expansion, one for revival. Is it a done deal between Kingfisher and Etihad or not? What about Jet and Etihad? Who will Etihad choose? Who should Etihad chose? When Jet and Etihad have been in talks for a while, and there are signs of significant progress, why is Etihad talking to Kingfisher about a stake sale?

Before we go further, in the interests of full disclosure, I own shares, albeit a very small number, in all three publicly listed airlines in India - Jet Airways, Kingfisher Airlines, and SpiceJet.

Firstpost hints at a possible reason why Kingfisher has suddenly popped up in middle of the Etihad Jet courtship. The aggressive demands and arrogant approach by Jet Airways, led by its Chairman Mr. Naresh Goyal, is well known in aviation circles. Despite being publicly ambivalent about foreign direct investment in civil aviation (some say even opposing), Mr. Goyal has been trying his hand out, trying to drum up investors and partners. Nothing wrong there. As a shareholder of Jet, I would want the company's leadership trying to get the best deal. However, it is possible that Jet started discussions and partnerships with one too many a partner, without sealing and fructifying previous deals, and this has soured the situation in more than one boardroom, from the middle east to Europe.

Reports also suggest Jet has been demanding a huge 65% premium, from its current share price, meaning Etihad will have to fork out almost $300 million for a measly 24% stake in Jet, and still get no management control. Furthermore, it appears that Jet has demanded Etihad pay over 50% of the planned investment upfront. These demands, and a possible arrogance of "we are the only airline worth dealing with in India", have queered the pitch, somewhat, prompting Etihad to consider Kingfisher.

So, who should Etihad choose? Jet Airways or Kingfisher Airlines? We welcome your comments and thoughts.

In my humble opinion Etihad should choose Kingfisher.

Etihad is a relative new comer to the airline world, having started just nine years ago, on November 12, 2003, but it is one of the fastest growing airline in the entire history of commercial aviation, under the leadership of James Hogan.

For strategic growth, Etihad has taken stakes in airlines in key markets around the world. 29.21% stake in Air Berlin, a member of oneworld, 40% in Air Seychelles, 2.987% in Irish carrier, Aer Lingus, and 10% in Virgin Australia.

Like the other two of the famous MEB3 (middle east big 3) carriers, Emirates airline of Dubai, and Qatar Airways of Doha, Etihad heavily depends on sixth freedom traffic, connecting passengers across the world, in and out of its Abu Dhabi hub, but due to its late entry, Etihad though does not enjoy the sheer seat volumes in the air services bilateral agreements, Abu Dhabi has signed with various countries, India especially, and in South Asia generally.

At 54,200 seats in over 189 wide body flights a week, Emirates is sarcastically considered the 'unofficial flag carrier of India'. India contributes almost 11% of Emirates' 33+ million annual passengers. Qatar Airways at 101 flights is not too far behind. Now Emirates is trying to renegotiate its India capacity to cross 89,000 weekly seats. The situation is similar in Pakistan, Bangladesh and Sri Lanka.

Etihad needs India for its growth story. Abu Dhabi is limited to about 25,000 seats a week, and Etihad has maxed it out.

Unlike Dubai, which is well served by Indian carriers, IndiGo alone offers 72 weekly flights with 12,960 seats, SpiceJet is at 48 flights and 9,072 seats, Air India, Air India Express, and Jet Airways too having a large number of flights, Abu Dhabi does not see much service by Indian carriers.

With Kingfisher, Etihad will get a 49% stake, and unquestioned management control. It can easily leverage Kingfisher to feed Indian and South Asian passengers to its Abu Dhabi hub, and in a fell swoop, can double its India capacity. From a network perspective also, Etihad today, needing to broad-base its India network, still flies A320 narrow bodies to most of its Indian destinations, Ahmedabad, Bangalore, Chennai, and Hyderabad. Only Delhi and Mumbai are served by wide-body aircraft. Etihad can deploy Kingfisher's A320s which are well equipped with in-flight amenities on these routes, while increasing wide-body capacity at strategic Indian destinations to better compete with both Emirates and Qatar.

Unlike Jet, Kingfisher also does not have an international network, especially to London, a prized destination for all the MEB3 carriers.

With Jet, Etihad gets a running airline, but only a non-controlling stake, and a stake sale will involve untangling the knotty issues of Naresh Goyal Jet Airways' ownership, which is routed through Tailwinds in the tax haven of the Channel Islands, and which is currently in violation of Indian securities laws.

By choosing Kingfisher, Etihad will have to essentially revive the airline, but it has significant assets, routes and slots. With total control, Etihad can remould Kingfisher to closer suit its strategic goals. Keeping in mind its stake in airberlin, control of Kingfisher would also allow Etihad an additional entry in to the oneworld alliance, something that Qatar Airways may not like too much.

On the financial front, while Etihad will get a controlling stake for not much money, it will have to deal with the significant accumulated losses and over Rs. 7,000 Cr. debt, of Kingfisher, owed to banks. This debt though, can be dealt with. Dr. Mallya will use some of the gains from the sale of United Spirits to Diageo to pay down that part of the debt for which he has given personal guarantees. On the whole, lenders will be relieved to see Kingfisher revive, which will enable them to slowly recover their money. Better to get a 50% haircut, than being shaved bald.

To pull this recast of Kingfisher Airlines off, Etihad will need political clout, and that is where Dr. Vijay Mallya scores over Naresh Goyal. While there is no doubt Goyal is THE formidable political force in the Indian airline industry, Mallya has the clout of the liquor industry, the grease pipe of Indian politics. National elections are coming in 2014, and the Indian politicians know they need to dance with the person who brung yah.

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The Kingfisher Airline's Airbus storage at Mumbai airport, ATR72 graveyard at Bangalore airport

In the Google Maps photograph below, you can see the storage yard, some may say, graveyard, of the Airbus fleet of Kingfisher Airlines at Mumbai airport.


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This parking area is at the 14 end of runway 32-14 next to the Kalina hangars of Air India.

From the top you can see an Airbus A330-200 parked in an East-West alignment next to the private jet. In the lower part of the image, from left to right, a representative of each of the Airbus jets in the Kingfisher fleet. 2 x A321's, 1 x A320, 1 x A319.

From a ground view the planes look somewhat like this.

Mean while, Bangalore airport is host to the ATR graveyard of the airline. This photo taken by me on October 24, shows the ATR 72-500 aircraft parked. The aircraft on the left of the picture have their engines stripped. The ones on the right are more recent additions, two of them without any logos on their tails, which typically means the airline does not own/lease them any more.

In related news, The Economic Times reports the Mumbai airport operator, MIAL, may ask Kingfisher to vacate the terminal, due to non-payment of dues.

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SpiceJet Q2 FY2012~2013 quarterly results financial analysis

Earlier this week, Indian low cost carrier SpiceJet posted a Rs. 163.5 Crore net loss for the second quarter of fiscal year 2012-13. While this represented a 32% better result than the same period last year, it is still a heavily disappointing result, giving the recent surge in the fortunes of India’s airlines after the shut-down of full service carrier Kingfisher and the corresponding rise in fares.

Revenues grew a robust 57% to Rs. 1207 Crore, but even still, a net margin of -13.5% is almost flipped 180 degrees from the ideal result.

Revenues were certainly buoyed by general fare increases and the continued maturation of Q400 markets.

What makes the quarterly results particularly abysmal is that SpiceJet has finally gotten its primary challenge of the past few quarters, fuel costs, under control thanks to the general global stabilization in oil prices. Year over year gas prices grew by a relatively modest though still challenging 11.6% on a per seat-kilometre basis.

What is concerning is that the dizzying rise in fares over the past quarter, over 30% on some sectors, should have more than outweighed the fuel price growth. There seems to be poor cost discipline in the airline's other cost-line items, primarily aircraft maintenance, which grew more than 17% on a per seat kilometre basis, and aircraft lease rentals, which jumped a staggering 26.2% percent year-on-year per seat kilometre.

These two cost line items, and indeed the fuel expenses as well, help drive home an essential point – SpiceJet’s losses are driven by capacity growth; i.e. poor capacity discipline by SpiceJet.

While a small part of SpiceJet’s maintenance cost increases are due to the natural aging of their 737NG fleet, the primary driver behind increased maintenance costs is the high rate of growth that SpiceJet continues to pursue. For the quarter, SpiceJet recorded a whopping 20% increase in available seat kilometers – and the increase in fleet size and aircraft utilization due to this capacity are the drivers behind the rise in maintenance and aircraft lease costs, as well as a primary factor in the 600% rise in depreciation costs.

Given the current environment in India, where fares are finally enjoying the sort of sustained quarterly fare increases necessary to overcome the ludicrous policy of over-taxation which double the impact of persistently high fuel prices, why is SpiceJet pursuing a 20% capacity growth?

Part of the answer is, undoubtedly, that their outstanding order for 20 737NGs, which locks them into almost continual route and fleet growth, at least for the next few quarters. But another part is what I see as the mentality that is prevalent amongst all of the Indian carriers, a market-share chasing mentality that values profitless growth over the profitable status quo. While there are exceptions to this rule, GoAir being the chief amongst them, Indian carriers have over the past decade consistently pursued growth at any cost.

Now this pathway has come back to haunt SpiceJet. Don’t get me wrong, there are profitable avenues of growth available to SpiceJet, chiefly on under-served regional sectors using the Q400, and on regional international routes out of Delhi. However, thanks to the over-commitment to new aircraft, SpiceJet’s strategy has instead been to add new routes and frequencies on heavily competitive domestic sectors, primarily on inter-Metro sectors. Then the accumulated losses on these flights simply add to SpiceJet’s debt load, making it harder for them to find financing for the Q400s and reinforcing the negative feedback cycle of profitless growth.

It is also interesting to note that SpiceJet has seen the steadily creeping interest expenditures. While SpiceJet is far away from the interest burden that crippled Kingfisher, and bankrupt US carrier American Airlines, and have hamstrung Jet Airways in recent months, this should be a cause for long term concern and constant observation.

Current finance charges are close to 4.8% of revenues, up sharply from less than 1% just a year ago. It is important to note, SpiceJet actually had Rs. 747.10 lakhs worth of interest costs, it has not accounted for, in this quarter, stating ongoing litigation at the Bombay High Court – a charge that would have made the already dismal results look even worse.

Moving forward, there is undoubtedly potential for SpiceJet to grow and improve its financial performance, especially if it can find financing for the next set of Q400 deliveries. The key for SpiceJet is capacity discipline – they need to find some way of bringing revenues in line with costs.

Cost-cutting is difficult since more than 75% of their costs are effectively fixed in the short to medium term. The easiest way to do this is by holding your supply (capacity) constant, which will in turn drive an increase in fares and thus increased revenues. However, this strategy will be tested by the constant fleet additions by competitors IndiGo and Jet Airways, as well as a constant observation by the government to keep fares "in check", a populist interference that will only grow as elections get closer.

A more plausible strategy would be the Blue Ocean growth being driven by CEO Neil Mills. The carrier is applying and getting route permissions for un-served and under-served international routes like Kabul, Guangzhou, etc. SpiceJet has to follow a similar strategy for the domestic market too. SpiceJet is gradually serving tier two and three cities from Bangalore, but is still not basing a full Q400 fleet here. Bangalore Aviation is given to understand that the airline is looking for a "good deal" from BIAL, the airport operator, but is not finding one, since the airport is under-capacity at present.

Given these macro-economics, for the short term, SpiceJet may continue to pursue a aggressive capacity growth path of more than 15% per quarter, and this will keep pressure on profitability. The faster the airline shifts strategy the faster the chances of it flying out of the trap.

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Airbus ends A340 era, selling last two aircraft, defaulted by Kingfisher Airlines

European airframer Airbus S.A.S. announced the sale of the last two A340-500 aircraft in its inventory, marking an end of the longest range model of its portfolio.

AJW Capital Partners Limited, a worldwide aviation services group based in the UK, has signed a firm contract for the purchase of two Airbus A340-500s aircraft. With this order AJW Capital becomes the newest Airbus aircraft customer. Powered by Rolls-Royce Trent 500 engines the aircraft features a comfortable two-class cabin for maximum passenger appeal. Commercial service will begin with an existing AJW Group customer early 2013.

The two aircraft MSN (Manufacturer Serial Number) 886 and MSN 894 were the last two of the five A340-500's ordered by Indian carrier Kingfisher Airlines, who defaulted on taking delivery of the entire order. The A340s with their ultra-luxurious cabin product were meant to be the flagships of the fleet with these two airframes originally allocated registration numbers VT-VJA and VT-VJB. Three aircraft from the order were sold by Airbus to Nigerian carrier Arik Air.

The four engined A340 series in general, and the A340-500 in particular was the least profitable aircraft for Airbus. With the rising costs of fuel, the ultra-long-haul (ULH) flights, the 282 seat A340-500, was designed for, no longer were viable. Airbus has been buying back A340s from airlines to help sales of the more efficient twin-engined sister, the A330, one of the most profitable aircraft for Airbus.

The two A340-500s appear to be destined to AZAL Azerbaijan Airlines with two Embraer 170s of another failed Indian airline, Paramount Airways. Swiss industry news website, ch-aviation, reports

AZAL has also acquired two ex-Paramount Airways (India) EMB-170s (c/n 17000002 and c/n 17000005) from Embraer subsidiary ECC Leasing that will already join the fleet in spring of next year. In other news, AZAL plans to add two A340-500s (c/n 886 and c/n 894) to its fleet for long-haul services that were originally ordered by Kingfisher Airlines, and then never delivered.

We opine that Azal will put these aircraft on a Baku-New York route.

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Kingfisher's Q2 FY13 record loss of Rs. 1,115 crore is more than five times its revenue

One of the many Kingfisher aircraft stripped and left

Financial beleaguered Kingfisher Airlines saw its second quarter revenue for fiscal year 2012~2013 plunge a massive 87% to just Rs. 200 crore (Rs. 2 billion) from almost Rs. 1,553 crore in the same quarter a year ago.

The airline which has not operated a single flight since October 1, due to strikes and a suspension of its operating license saw its quarterly losses before tax, balloon by over 60% to Rs. 1,115.5 crore, compared to losses of Rs. 693.8 crore from the same quarter last year.

Clearly the claimed "holding plan" of the airline is not working. The first quarter results earlier this year saw quarterly revenue plunging 84% from the same quarter a year earlier, and the quarterly pre-tax losses were almost Rs. 694 crore. Large at that time itself, but diminutive by this quarter's numbers.

In the first quarter, losses at the airline were 3x the revenue, this quarter, the losses have jumped to 5.5x i.e. the airline lost Rs. 5.50 for each rupee it earned.

The leader of the lending consortium, State Bank of India (SBI), which has an estimated exposure in excess of Rs. 1,200 Cr. to Kingfisher Airlines, yesterday, is almost begging the airline's promoters to inject a minimum of $ 1 billion (approx. Rs. 5,500 crore) before this month's end for its revival.

The airline released essentially the same statement as from last quarter

Kingfisher Airlines has been in a holding pattern, operating a limited schedule since March 2012.

Kingfisher Airlines is preparing a comprehensive plan for re-start of operations which will be shared with the DGCA and bankers.

The airline is in discussion with various stakeholders to ensure that there are no future disruptions. Kingfisher Airlines expects to resume operations in the near future.

If the airline had an investor, don't you think it would have put out some plans till now?

Share your thoughts via the comment system.

You will observe, Bangalore Aviation has not done any analysis per se on the results. What can we analyse?

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Opinion: Kingfisher Airlines' license suspension actually helps Vijay Mallya

On Saturday India's civil aviation minister Ajit Singh, announced that aviation regulator, the DGCA had suspended the operating permit of Kingfisher Airlines, after the carrier failed to respond to their show-cause notice.

With mountains of unpaid debts, the airline has been on life-support for some time now. Unpaid employees have been striking since October 1, resulting in a suspension of all flight operations by the Dr. Vijay Mallya promoted airline.

While many proclaimed their eulogies, the PR folks at the airline, called the suspension temporary

"We would like to clarify that this is not a cancellation but a temporary suspension which is valid only till such time that we submit a concrete and reliable revival plan to the satisfaction of DGCA."

The alcoholic beverages (alcobev) business in India is at the intersection of public relations, sexually aspirational marketing, board-room machinations, manoeuvring around the hundreds of contradicting laws, gratification and slush funds of administrators and politicians.

Call me a conspiracy theorist, but I refuse to accept that a man who made his billions in this tricky business, will just fold up his airline, risking his personal assets and those of the UB Group, which have been given as surety on the loans to the airline.

Going out on a limb, I suspect, this suspension may be one last, desperate move by team Mallya, to scare the stakeholders, employees, banks, vendors, and government, into saving the airline.

The striking employees who have been unpaid for seven months have been taking a hard line. With the management offering only one month salary, reconciliation meetings till now have proved futile. Ahead of their meeting with the management on Monday, the suspension suddenly gave the employees a preview of cold, hard reality. If the airline goes under, not only will they not get their unpaid salaries, but they will have to look for new jobs in a shrinking Indian aviation market.

The banks which are refusing to lend any more funds, demanding the Mallya bring in about $500 million (Rs. 2,500 Crore) to re-capitalise the airline, were given a preview of Kingfisher going under. Banks have collateral for only about 10% of their loan exposure. A lengthy, expensive, legal recovery process is not a desirable situation for them. Recovery proceedings may also bring to the surface undesirable information and questions, about potential political influence in these government owned banks granting loans to the airline.

The vendors, especially the airports, the fuel companies, and lessors, who will have to commence lengthy and expensive litigation to recover their dues if Kingfisher goes under. The mess will get further complicated due to cross litigation between the various vendors. For example the lessors who own the aircraft will have to pay the dues of airports before they can take away their aircraft.

The Government, by ordering the suspension or cancellation of Kingfisher's permit, has given Mallya the perfect escape route. He can now dump the entire problem in to the government's lap, saying "What can I do? I did my utmost to save the airline, but the government cancelled the permit. Now they must deal with the consequences."

The spin doctors are UB Group are masters in PR. We recently experienced how well they diverted the media's attention away from the Rs. 60 Cr. humanitarian loan extended by banks. Get a Kingfisher stewardess out in protest saying she is out on the streets, and all the TV news channels will cover it from head to toe. In no time, public opinion will be turned, that the government must be humane and take care of those poor unpaid employees who are now out on the streets.

Last, but not the least, is us passengers and tax payers. Thanks to capacity reductions, fares are already up 20% in the last few months, and over 50% compared to last year. With the Dussera festival this week, kicking off the peak travel season till mid January, and Kingfisher out of the picture, fares will rise to astronomical levels. There will be a public outcry and the government will be forced to defend the situation with the Kingfisher spin doctors saying "See, we tried to save the airline. The government closed us down. These fare increases are due to that."

The situation is being unfolded exactly how the King of Good Times wants it.

What are your thoughts on the suspension of Kingfisher's permit? On my conspirator theory? Your thoughts and comments are always welcome.

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Air traffic plunges 11.5%, as air fares rise. Jet Airways group crashes almost 21%, IndiGo down 11%.

Talk about irony. In March this year, Dr. Dinesh Keskar and Bangalore Aviation were discussing the double digit, yet profitless growth occurring in the Indian airline industry.

Less than six months later, air traffic continues its fifth consecutive month of decline. Within, just the third calendar quarter, (second quarter of the fiscal year 2012~13), air traffic plunged over 11.5%, from 4.537 million passengers in July, to 4.018 million in September. August at 4.369 million passengers was down 3.7% from July, and September was down 8.03% from August.

No airline could avoid the contagion. Jet Airways group is down a whopping 20.63% for the quarter, dropping from 1.207 passengers in July to 0.958 passengers in September. Even market leader IndiGo which is steadily growing its fleet, is down a significant 10.77%. SpiceJet is down 8.04%, Air India down 5.95%, and Kingfisher down 9.62%. GoAir performed the best, losing 2.85% of its passengers.

Year on year for the nine month period January to September this year 43.839 million passengers travelled by air domestically, compared to 44.218 million last year. Down 0.9%.

For the month of September, IndiGo continued its market leadership, but it appears the fare war unleashed by Air India has gained it passengers at the expense of all other airlines. Air India even beat Jet Airways, carrying 0.775 million passengers compared to 0.729 million by Jet Airways.

Put the blame for this contraction on the significant increase in airfares over the last six months, driven by the collapse of Kingfisher Airlines. Airlines are reducing the excess capacity, which has already increased fares over 20%. For the winter schedule which commences October 28, Indian carriers will fly 20% less flights than last year. 10,935 vs. 13,541 flights per week. Experts, expect air fares to rise another 10%~15% during the winter season which is also highest in terms of demand.

No airline crossed a passenger load factor of 70%, even the traditional leader IndiGo which used to regularly be in the top of the eighties or low nineties.

How will this capacity decrease impact passenger numbers? What is your view? Share a comment.

Also, do you think such major fare increases bodes well for the Indian consumer? Share your thoughts.

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Kingfisher Airlines: Diverting the media's attention away from things that matter

For the last week or so we are overloaded with the media's fascination about the financial troubles at Kingfisher Airlines and its flamboyant Chairman Dr. Vijay Mallya, and his less than flamboyant, and far less street smart son Sidhartha.

Like the famous wild dogs of Africa, which hunts in packs, the media had descended en mass on the sorrowful suicide of the wife of a Kingfisher engineer.

For two days we heard and we read only about the suicide. Then we heard that the banks in a "humanitarian" act, had lent another Rs. 60 Crore to Kingfisher to pay salaries, given proof to the theory, sorrow does sometimes cause a loss of rational thinking.

With a monthly salary bill of Rs. 20 Crore, Rs. 60 Crore will pay about three of the seven months of overdue salary to Kingfisher employees. Instead, Kingfisher said it can only pay one and a half months. So what was the carrier going to do with the balance Rs. 30 Crore? Pour it down the veritable Kingfisher black hole? No story has come out in any of the major print or electronic media questioning this hocus-pocus.

Instead of chasing the money, credit should be given to the Kingfisher strategists. They have successfully, and cleverly, diverted the media's attention an e-mail from airline CEO Sanjay Aggarwal to the airline's employees with the same "come back to work" content with no mention of salaries, and to the fact that Kingfisher was selling tickets in violation of a DGCA diktat.

The airline strategy team surely have a job reserved at a magic show a'la Houdini or PC Sorcar.

I would like to ask a question of these bankers.

When you know Kingfishers less than stellar financial management techniques, why not ask the airline for a salary statement and give the salary directly to the employees?

Isn't this a sort of reverse wage garnishing? A common practice for banks and creditors to recover their dues? and this method will allow for the humanitarian act to truly reach its intended beneficiaries, instead of being spent on more bikini clad babes.

And to my dear and esteemed friends in the media, I recount the sage advice given by "Deep Throat" to Bob Woodward and Carl Bernstein; "Follow the money".

As usual, your thoughts, dear readers, are requested, via a comment.

Image courtesy Wikipedia

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Vijay Mallya shifts ownership of his Airbus A319 private jet VT-VJM away from Kingfisher Airlines

In what could be a move to protect his personal toys, UB Group has transferred the operational ownership of the ultra-luxurious Airbus A319-133ACJ (Airbus Corporate Jet) used by Kingfisher Airlines Chairman Vijay Mallya out of Kingfisher Airlines.

In its previous avatar, VT-VJM used to sport a tail with the Kingfisher Airlines logo and used to operate with the radio call sign "Kingfisher 11 (one-one)".

Now the plane wears a plain white tail with the same UB Group logo near the front door, but with a conspicuous absence of any reference to Kingfisher, the beer, or the packaged drinking water, or the airline. Sources inform that the plane has also stopped using the radio call sign "Kingfisher 11", and now just uses its registration number like any other private plane does.

VT-VJM at Liege Airport when Dr. Mallya attended the Belgian Formula 1 Grand Prix. Photo copyright Jean-Marie Hanon. Used with permission of the copyright holder. All rights reserved. Do not reproduce.

Both Boeing and Airbus offer a business jet version of the popular 737 and A318, A319 airframes. Typically, the commercial A319 carries about 140 passengers, but the corporate jets have a much more luxurious interior, reducing the passenger capacity.

The price of the aircraft is reported as $61,093,550 — its standard equipment costing $33,321,040 and customised equipment $27,772,510, when purchased in November 2006. As per DGCA records the owner leasing company is C J Leasing (Cayman) Ltd., located in the tax haven of the Grand Cayman islands. This implies a sale and lease-back arrangement.

Dr. Mallya's plane has a capacity of only 22 passengers as per DGCA records. In addition to its hefty price tag, an ACJ319 typically costs upwards of Rs. 10 Crore  per year to operate. Given Dr. Mallya's many international trips to and from various Formula 1 venues across the globe, the operating costs of his private jet could be, even higher.

The picture below shows a representative business jet cabin layout, but each owner decides the level of customisation and luxury. A normal A319 will cost about $7 million above the base airframe to outfit for airline use, but Dr. Mallya's plane has cost a whopping additional $27 million. One can be reasonably sure the aircraft has a bedroom and may be even a shower, in addition to a business section.

Though the transfer of the aircraft out of Kingfisher Airlines reportedly took place sometime in May or June this year, DGCA records still reflect the old information of Kingfisher Airlines. The correct status of two Eurocopter EC-155-B1 helicopters (VT-SVM and VT-LVM) owned or operated by Kingfisher Airlines, too remains unknown.

VT-VJM was last spotted in the New York city area leaving for a trans-Atlantic flight on October 4th morning. Her current whereabouts are unknown but we can be rest-assured it will be at New Delhi on the weekend of 26~28 October during the Airtel Indian Grand Prix.

Share your thoughts on this transfer via a comment.

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Opinion: A date of ignominy in the Kingfisher Airline calendar

2010 Kingfisher Calendar. Copyright KingfisherWorld

Kingfisher is known for its super-sexy swimsuit calendar, featuring some of the most beautiful women in the world, and Kingfisher Airline's Chairman Dr. Vijay Mallya's son, Sidhartha, may love cavorting on the beach with them, but yesterday, October 4, 2012, witnessed a tragedy, and was, to borrow the words of FDR, a date that will live in infamy for the financially imploding airline.

The wife of one its employees committed suicide due to non-payment of her husband's salary for over six months.

Sushmita Chakraborti was not a model on a fancy calendar, nor would either of the Mallya father or son, like to cavort on the beach with her; she was the poor, 45 year old wife of a retired Indian Air Force officer, Manas Chakraborti, who is working, salary unpaid, as an engineer with Kingfisher Airlines. Living in a LIG (low income group) housing colony in airport suburb of Dwarka, in New Delhi, where she hung herself, she was the mother of an 18 year old college going son.

CNN-IBN reports, in her suicide note, Sushmita wrote,

"My husband works with Kingfisher where they have not paid him salary for the last six months. We are in acute financial crisis and so I am committing suicide"

Mrs. Chakraborti's suicide has stained in blood the Kingfisher Airline's image, and forever damaged the already tarnished the Kingfisher brand, once valued at over Rs. 1,000 Crore. The contagion is already spreading. The Reserve Bank of India has already instructed banks not to use the brand as collateral for loans.

Her death is in stark contrast to the extravagant uber-lavish lifestyle of the Mallyas, which has been loudly condemned across the country, yet shows no sign of abating. Even as Sushmita was dying, Dr. Vijay Mallya was overseas, reportedly on a vacation, leaving the airline CEO, Sanjay Aggarwal, to meet with Government officials, Kingfisher pilots, engineers, and other employees, with the same helpless platitudes that has plagued the airline for over a year. He too, he says, has not been paid his salary.

While many Kingfisher employees held candlelight vigils around the nation, in support of the grieving family, CNN-IBN reported, the airline’s company secretary Bharath Raghavan resigned.

Yesterday too, the airline extended the lockout to October 12, 2012, blaming the employees for "illegally" striking. Talk about the pot calling the kettle black.

Last yesterday, in a clear sign of the political clout of Vijay Mallya, the Income Tax department agreed to unfreeze the airline's bank accounts containing about Rs. 60 Crore. The authorities had frozen these accounts in May this year, when Kingfisher failed to deposit the withheld income taxes, deducted from employees salaries, since March 2009. This apart from non payment of service tax to the Excise department. It is important to note, that there is no sign that either Kingfisher Airlines or Dr. Mallya have cleared this liability.

Continuing the clout, the banks, who are owned more than Rs. 8,000 Crore by Kingfisher, and who, by their own admission, do not have collateral worth more than 10% of the loans, have agreed to release this money towards payment of employee salaries. Now, whether this money will be disbursed to the unpaid employees or squandered in more fancy lifestyle displays, is not known.

As this tumultuous week comes to a close, we offer our sincerest condolences to the Chakraborti family, and condemn the actions of the airline, its leader, and all his political benefactors who have allowed circumstances to degrade in to an abyss, resulting in this tragic act of desperation. Yesterday was a day of ignominy for you Dr. Mallya.

Comments are welcome. Messages of support are welcome. Any defence of Kingfisher or Dr. Vijay Mallya is very welcome. And last but not the least, please do cast your vote in our survey whether Kingfisher Airlines should be allowed to continue or be closed.

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Survey: The Kingfisher Airlines drama continues. Is the airline ready for euthanasia?

Employees of Kingfisher Airlines have finally reached a breaking point. The airline, blaming the employees has declared a lockout

Kingfisher Airlines Limited today announced that following a series of protracted and unabated incidents of violence, criminal intimidation, assault, wrongful restraint and other illegal acts including refraining from attending work, by a small section of recalcitrant employees which were all unnecessary and unprovoked, the management has been forced to declare a partial lock-out at the airline, effective immediately.

May be the airline should look at the insensitive tweets of Sidhartha Mallya, son of Kingfisher Chairman Dr. Vijay Mallya.

Just spent the morning playing volleyball with 12 bikini clad models on the beach...now I understand why people hate me. HA!
— Sid Mallya (@sidharthamallya) September 29, 2012

Rubbing a high flying lifestyle, in to the face of employees whose salaries remain unpaid for months, will surely achieve disastrous results.

The Directorate General of Civil Aviation (DGCA) summoning the Kingfisher management to a meeting on Tuesday, which happened to be Gandhi Jayanti, a national holiday, shows us, the seriousness of the government, which till now has been treating Dr. Mallya with kid gloves.

Even the Civil Aviation minister Ajit Singh, a well wisher of the airline, warned that the government establishment could no longer ignore frequent disruptions and non-adherence to published flight schedules, reports The Economic Times (ET).

"Disruption of (flight) schedule has become an issue with Kingfisher Airlines. While the issue of passenger safety is paramount and cannot be jeopardised and DGCA needs to be satisfied that there are no safety concerns, Kingfisher has to also ensure that they operate flights as per the schedule they have submitted to the DGCA," Singh told ET over phone.

To rub salt in to the wounds, the Kingfisher management arrived in Delhi on board a flight of arch-rival IndiGo. Kingfisher CEO Sanjay Aggarwal and Executive Vice President Hitesh Patel had an hour’s meeting with DGCA chief Arun Mishra. FirstPost reports, Aggarwal told the regulator, Kingfisher is loosing Rs. 80 million (Rs. 8 Cr., $1.5 mn) per day and also presented ten points. Most of them we have heard before. During the lockout, the airline cuts its losses in half, says Mint. This raises the question, why not keep the airline in hibernation till a foreign investor is found? Two immediate answers are; (1) Given its massive losses and accumulated debt, it is not very certain how attractive an investment Kingfisher is, despite the claims of the company and (2) With each passing day, by not operating its schedule, the airline is loosing its most desired assets, the routes and peak-time landing and parking slots at the major airports.

In the meeting, the airline executives reportedly told the DGCA, Kingfisher is in talks with the various authorities for unfreezing multiple bank accounts, holding about Rs 600 million, frozen due to non-payment of various taxes and mandatory dues, which includes the with-holding taxes deducted on employees salaries, but not remitted to the government. An act, which invites immediate trips to jail for mere taxpayers like you and me, but not the Chairman sahib. 

In the meeting Mishra gave an ultimatum, that the airline must give a time-line for paying employees, apart from a “satisfactory and realistic” operational preparedness plan, before it can get permission to fly again, as per a report in Business Standard.

Mr. Mishra went to warn other airlines not to profit from the suspension of Kingfisher flights, but market forces are already taking effect, and fares are rising, thanks to panic buying for the upcoming holiday period by concerned travellers

Aggarwal who apparently has not been paid salary himself was left to defend the airline while the Chairman was nowhere to be seen. He was confident the airline, which has a monthly wage bill of Rs. 200 million, would be able to pay the pending salaries in the next few days. The reason for Aggarwal's confidence? May be a deal between United Spirits and Diageo, which DNA reports should be announced tomorrow. However, some other reports suggest that Mallya will use the proceeds of this sale to retire those liabilities that have his personal guarantee. Is he getting ready to finally bail out of Kingfisher Airlines? Or once his guarantees are retired, he threatens the banks to walk away from Kingfisher unless additional funding is provided?

The Economic Times also reports that Mallya has borrowed Rs. 525 Cr. from HDFC Bank against his ancestral property, but it is not clear whether this money has been used to fund Kingfisher Airlines in any way. Is Dr. Mallya reduced to selling the family jewels to wriggle out of the situation?

Despite the regulator not being satisfied, according to the Mint, Mishra has indicated there is no risk of the airline being shut down, since they have more than the minimum five aircraft.

This surely begs the question, why is the airline still being propped up? Is it to protect the books of the various government owned banks, led by State Bank of India, who are owed over Rs. 80 billion (Rs. 8,000 Cr.), and whose books will be awash with red if the airline goes under? Is it because of the government's policy, which does not allow for quick or easy liquidation of failed companies, thanks to a misplaced pride to demonstrate, that Indian companies do not fail?

Can this airline be saved? Or is it time for this airline to be euthanised? Share your views via the survey below and via comments.

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Share your view: Strikers manhandle fellow employees at Kingfisher Airlines disrupting flights across the network

Our topic of this week comes thanks to the financial troubles at Kingfisher Airlines.

The flights of the financially ailing carrier have been disrupted across its India network due to striking engineers.

As per media reports, striking employees, after hearing that some employees received salaries, manhandled fellow employees, beat up a management executive, held passengers hostage aboard a flight for over three and half hours by refusing to connect aero-bridges or ladders to the arriving aircraft.

A statement issued by Prakash Mirpuri, Vice President-Corporate Communications, Kingfisher Airlines Limited, said

A section of employees of Kingfisher Airlines has not been reporting to work over the last fortnight and over the past 2 days, they have been threatening and even manhandling the other employees who are reporting to work as usual. We are anticipating disruptions and/or delays of flights across our network on October 1, 2012 as it is likely that a section of employees of Kingfisher Airlines may not report to work due to such threats. With a view to mitigating the impact of these anticipated disruptions, we are proactively cancelling several flights across our network for October 1, 2012.

As per the Press Trust of India, pilots from Mumbai have joined the striking engineers, adding to the disruptions. Mirpuri went on to say

We are monitoring the situation and continue to engage with this section of employees to see reason as such action is not only detrimental to the company but directly impacts the travelling public and it will be our endeavour to resolve the situation and restore normal operations at the earliest.

Unfortunately, it appears that non-payment of salaries have frayed the patience of the employees to breaking point. This does not appear to be a one or two wildcat strike. This is serious and appears long term.

The attack on an executive is a milder shade of one of the worst and recent industrial unrest in India, at Maruti's Manesar plant, which resulted in death, as is the holding of passengers hostage.

The country's civil aviation regulator the DGCA has indicated it will review the situation.

The platitudes offered by Mirpuri, though genuine, may not be enough to placate irate customers

We deeply regret any inconvenience that may be caused to our valued guests on account of this unprecedented action by a small section of employees and we are doing our best to minimise the impact of these anticipated disruptions.

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