Kingfisher Airlines - Time to Pull the Plug on Mallya

Update- A PTI report of the lender's meeting with Kingfisher Airlines management, says it was inconclusive. The company did not make any commitments on the infusion of fresh funds. The only action the banks pushed for was to value two of the pledged properties- Airline House at Andheri and the Kingfisher Villa in Goa. Mr Mallya did not attend and was represented by the airline's CEO Sanjay Aggarwal.

Despite its posh brand, Vijay Mallya’s Kingfisher Airlines is unraveling faster than a cheap woolen sweater. But not fast enough it may seem. At a meeting today at SBI’s Mumbai headquarters, the group of lenders led by SBI turned the screws on Mallya, by saying they would take charge of Kingfisher House, his office building. Yet again, they stopped short of doing what they should have done long ago- throwing him out and pushing for a change of management to help the airline survive.

The biggest reason for Kingfisher Airline’s decline is clearly Mallya’s hubris and wrong management calls at every step of the airline’s seven year existence. The beer-baron has never brought in professionals to run the carrier- even the CEOs he hired like Nigel Harwood (who came from Airbus) or more recently Sanjay Aggarwal (from SpiceJet), are never allowed to take their own decisions. KFA has been micro-managed by Mallya. It has also never made a single rupee of profit. He got the model wrong, the equipment wrong and the strategy wrong- sealing the airline's fate in times that were tough for even the best run carriers.

Airline bankruptcies are a common occurrence the world over. The last few weeks have seen hoary Hungarian carrier Malev go under as did Air Finland, Skyway, Cirrus and Danish carrier Climber Sterling. Many others, notably United Airlines and America West, have survived after restructuring to fight another decade. But this is largely because of Chapter 11 protection that the US banking system allows. When they do revive- it has often meant a complete change in management and operating methods.

The hole that Kingfisher is in is much larger than the airlines that went bust in May this year. If Kingfisher goes under- rather, if it is allowed to- it will be by far the biggest bankruptcy in corporate India. In most countries, this would have been reason enough for bankers to get in someone who can cut the mustard. Not here for sure. Banks have traditionally chosen to give promoters a long rope. To hang themselves with- it would seem in this case. Bankers speaking off the record, say their experience with loss-making Indian companies in the past decade is that they come out of it- eventually. ``Liquidating assets does not help anyone,’’ they say citing the example of Ispat, Essar Oil and Dabhol Power company. All three eventually began paying back their loans.

But does this theory work for an airline company? Unlike the steel companies, Kingfisher Airlines has few assets. The aircraft, engines, spares, offices are all leased. The slot, brand and people are intangible assets that are difficult to monetize. The Kingfisher brand is one of the assets hypothecated for the loans- but bankers are not very sure what they will do with it. Also, it could never get its model right.

Mallya is on our cover in the issue that hits the stands this weekend. Read more about the Entrepreneur on the Rocks there.

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