India’s biggest lender, the State Bank of India is in a unique position this month. It is pulling the plug on two amazing entrepreneurs. Both extremely passionate businessmen launched startups that aimed for the sky. Sadly, both failed rather spectacularly and the bank and other lenders and suppliers are trying to pick up the pieces.
Capt Gopinath and Vijay Mallya may seem like chalk and cheese. The first is probably India’s most vocal champion of the Aam aadmi, much before Arvind Kejriwal came on the scene. The second is synonym for Good times…or was. We at Forbes India like to tell stories of entrepreneurial capitalism. Of businessmen, who spot an opportunity way before anyone else and are able to create wealth for themselves as well as others. Not surprising that the two gentlemen have featured on our pages many times. More recently, the stories have been about their struggle to keep the businesses afloat.
SBI’s auction of real estate and other assets pledged by Capt Gopi for Deccan Cargo and Express Logistics (DCEL) is slated for the end of this month- the bank is trying to recover Rs 211 crore, classified as a non performing asset. This will probably be from sale of real estate pledged to the bank. Over the seven years after he sold Air Deccan, Capt Gopi has launched and failed at a string of aviation-related ventures. Never one to give up, he was very close to starting Air Deccan Version 2, with a bunch of foreign investors early this year. The plan was to be announced once his non-compete clause with Kingfisher ended in February. But this never materialized. The investors developed cold feet after the surprise launch of the much stronger AirAsia-Tata LCC. It was tough to keep lenders at bay and everything began unraveling rather fast thereafter .
Many of the problems with Capt Gopi’s recent businesses Deccan 360, Deccan Shuttles (Gujarat) and Deccan Charters were a result of the entrepreneur’s management style- much of it was evident in the way his airline was run.
Though, SBI’s losses are entirely on another level with Vijay Mallya and Kingfisher Airlines. The public sector lender leads a consortium of 17 banks that have an outstanding of about Rs 7,000 crore. About Rs 1,000 crore of this has been recovered and the bank is now moving to liquidate Mr Mallya’s personal guarantees.
There are obviously lessons to be had from the rather well-documented failure of the two entrepreneurs. Their career trajectories are intertwined in a rather tragic-comic way after Capt Gopi sold his airline to Mallya. Both have no love lost for each other. Capt Gopi says of Mallya that “he killed my airline and I think then he killed his own.’’ Closer scrutiny shows many amazing parallels in their management styles. Here are six of the simplest ones that we’ve pieced together from our conversations with the two entrepreneurs over the past decade and this week (with the benefit of hindsight) with senior managers and investors who worked with them.
#Problems of Micro-management
Everyone who worked with Capt Gopi agrees he is a visionary- he was able to spot the potential for LCCs, at a time when everyone else was saying it just couldn’t be done in India. But arguably, his biggest failure was that the inability to take a step back once the airline was up and running. He had his finger in almost every part of the airline operation. From dealing with the regulators and politicians in Delhi to the airport managers in Hubli and Kolhapur he did it all. This was so when he operated with two aircraft, as well as when it had twenty-two. One senior manager remembers how Capt Gopi kept it up, even after he had sold the airline to Kingfisher. He was still on the board, with a small residual stake and it was embarrassing how he still tried to run the airline, he says. Mallya had already signaled that he intended to jettison the Low cost model- but Capt Gopi would continue urging colleagues to do what he said. One person remembers being asked to do a massive cheap ticket sale to draw in more passengers.
Being unable to delegate is an even more severe problem with Vijay Mallya. He was hugely involved with Kingfisher, and this, may have been the biggest contributor to the downfall. Stories about him personally selecting the crew and their uniform are by now urban legends of the Indian airline industry. But line managers say there was much more. Even when there were people hired to do a job, he would get very closely involved. Monitoring ontime performance daily did not simply mean that reason for delays on every single Kingfisher flight were sent to his Blackberry, but he would call up from all around the world, to check on the reasons and make changes in schedules/ timings. The problems were compounded because Mallya also had UB’s liquor businesses to run. His time was at a premium, and most of it was devoted to `personally’ looking after details of the airline.
#Mucked up Operations
Three years into Air Deccan’s journey, the airline was in an operational mess. It had acquired a bad reputation for cancellations, lost bags and very poor ontime performance. Thousands had bought into Capt Gopi’s dream of `Everyone can fly’, but were upset by the poor delivery. Complaints piled up and violence at the check-in counters was not uncommon. In 2005, he tried fixing this by bringing in a brand-new team of expats, mostly from Europe, headed by Warwick Brady as chief operating officer. For a time Brady and his team were able to patch up the system, but this didn’t last. Resentment built up between the expats and the local (Indian) employees. The problems were never sorted and by the time they left, the brand had lost its sheen.
At Deccan 360, which was in the express logistics business, the problems were more severe. The airline was unable to sign up the big-ticket anchor customers that were so critical to provide cargo that would fill the planes. This was despite hiring a team with strong logistics and aviation background. The venture folded up by 2011.
At Kingfisher, the problems were if anything, larger. Even before breaking even on domestic flights, Mallya had quickly started international operations- using rights from buying Air Deccan. He launched flights from three Indian cities to London. He ordered planes worth billions of dollars, and began drawing plans towards long-haul flights to cities in Africa, Asia, Europe, North America. As it turned out, this was too much too soon. As the global financial crisis deepened, corporate traffic tanked and there were simply not enough people flying. The long-distance flights with a handful of passengers on the international routes guzzled fuel and money! At one time the London flights amounted to a quarter of the total losses. Even when the going became very bad, pride dictated Mallya’s business decisions. He wouldn’t cut the London flights till March’ 2012, by which time losses had eroded the net worth completely.
#Poor organization structure/ processes
In both cases people at various levels reported directly to the entrepreneur. Air Deccan never had a CEO, and the COO (chief operating officer) was the top executive. But the power was always with the founder. One former COO, says he was nothing but a dummy.
At Kingfisher, the confusion was even more widespread. There airline never had a real CEO, until Sanjay Agarwal was appointed in 2011, by which time the airline was already in a downward spiral. It has had COOs at various points- but with little power. “Irrespective of their designations, dozens of people in the organization reported directly to Mallya,’’ says one VP, who is still with the airline. The boss had direct equations with some people and their power in the company came from their proximity to him, he says. Many senior employees, including CFO, the admin head and the legal head, were never on Kingfisher payroll. They came from UB and remained that way. There were active fights for turf, as the mini-CEOs fought with each other.
Mallya’s legendary `management after sunset’ style, did not help either. “It was crazy how so many decisions were taken at midnight,’’ says a sales head who quit last year. The sad part was that we’d be waiting for him from 3 pm, doing nothing, he says.
#Slow response to external changes
Capt Gopinath’s latest venture Deccan Shuttles, planned to link smaller cities in Gujarat, with charter services almost didn’t take off. The government changed its rules, disallowing wet-lease (leasing with crew) of aircraft. This was done even while Capt Gopi’s planes (and crew) were on the way from Europe, and stranded in Muscat. The service which finally started with a 9 seater Cessna Caravan could never breakeven. It wound up this month.
Mallya’s dream for Kingfisher and his aviation business was King-size. He was in talks to buy a light jet manufacturer in the US and had personally begun negotiating slots and space for Kingfisher lounges in airports around the world. He dreamt one day being able to fill up his A380s with passengers from India. The financial meltdown changed all that. At first people simply cut down their travel, when they started they chose LCCs. Mallya was unable to respond in time.
As Tolstoy said, `Happy families are all alike; every unhappy family is unhappy in its own way.’ The parallels we’ve listed out, between the way the two Bangalore entrepreneurs did their business, are certainly not the only reasons why they failed. There are scores of others, and not all of them can be documented here. The airline business is complex anywhere in the world- but even more so in India. It burns cash fast, is highly regulated and produces a commodity that is worth nothing if not sold in time. Making a success of it is no small beer.