In defense of Vijay Mallaya But strictly against the system which repeatedly ends up such mess without learning any lesson. So, same mistake emanating from predatory premises driven by endless parasitic approach of capitalistic system where Greed happens to be the God of rogue players!!!
“WE ARE ALL CONDITIONED TO RESPOND TO THINGS IN A PARTICULAR WAY- FROM OUR PARENTS, SCHOOL, AND GOVERNMNET. IT’S THE WHOLE CAPITALISTIC PROGRAMMING OF MIND CONTROL THAT MAKES US CHASE AFTER THESE MATERIAL THINGS. I ‘M TALKING ABOUT SELF-DETERMINATION, ABOUT ENDING SLAVERY TO THE ALMIGHTY DOLLAR, MAN”: from The Pursuit of Happiness
Already it has become the prevailing wisdom to see Vijay Mallaya as a villain. A Rogue businessman. Flamboyant maverick deeply indulged in luxury. An attention-seeker who never missed a single chance to flaunt his profligacy. Meanwhile this is the high-time when you have been bombarded with negative news reports, analysis et al by all section of media and, yes, these reports are true also! News reporters, anchors and other analyst are desperate to write the epitaph of his Kingfisher Airline. But before jumping on any conclusion related to debt-ridden Kingfisher Airline promoted by Vijay Mallaya, just go through the snippets mentioned below.
Kingfisher Airline is not alone in the league of debt-ridden companies with more than INR 7000 crore debt. DLF –country’s largest real estate developer- has debt of more than INR 21,254 crore, Reliance Communication –telecom outfit of ADAG- is under debt of INR 33,700 crore as on September 2011, Bharti Airtel is under debt of $7.5 Billion, Indian Oil Corporation has debt of more than INR 2,70,000 crore, Air India –the national air carrier shoulder a hefty debt of INR 40,000 Crore, JayPee Group has total debt of INR 40,000 crore and list is quiet long.
The point is obvious that it’s not only Kingfisher Airline which has debt obligation to its lenders but it seems a rule of the game.
Now have looks on some more dis-quieting bite of information:-
· Parliament’s standing committee on finance is to meet finance ministry officials on Friday to discuss measures taken by the government on important economic issues such as a depreciating rupee, information on foreign bank accounts of Indians and Moody’s downgrade of bank ratings.
Business Standard, November 16, 2011
· The government is under attack again for its handling of issues such as inflation, corruption scandals and other economic worries. Financial services firm CLSA has come out with open criticism against the government as well as the banking regulator of the country. It said the government is the weakest link in India's economic rise.
Business Standard, November 16, 2011
· Industry captains have said that one of the biggest constraints for India’s economic growth is high interest rates, and that the RBI should take measures to control supply-side bottlenecks rather than hiking rates. They were addressing the media at the India Economic Summit 2011.
Financial Express, November 16, 2011
· At least three central ministries are drafting measures to bail out the beleaguered airlines industry after Prime Minister Manmohan Singh vowed government help for loss-laden Kingfisher Airlines.
Economic Times, November 15, 2011
· The Reserve Bank of India (RBI) has pointed out banks’ disproportionate growth in loans to the commercial real estate sector, the retail segment and the infrastructure sector. Banks have also been found lending heavily to non-banking financial companies (NBFCs).
Business Standard, November 15, 2011
· In a toughening of stand on their exposure to the power sector, banks have started refusing to disburse sanctioned loans to generation companies unless these firms are able to convince them about a steady supply of coal.
Business Standard, November 14, 2011
· The September 2011 quarter has turned out to be the worst period for India Inc in three years with a sharp fall in net profit and shrunk margins. A steep increase in fuel and interest costs, and unfavorable foreign currency movement. Economic Times, November 14, 2011
Vijay Mallaya has grabbed the media’s attention, people’s mind, and a lot of space in electronic, print and social media. Intellectuals, educated and semi-educated people with news & information provided by media channels are leaving no stone unturned to right the epitaph of Kingfisher Airline. Well, it’s not bankrupt at all. What is Kingfisher Airline is facing is just the cash-crunch to meet its daily operational cost and to meet its dues to its vendors, lessors and lenders!!!!!!
Many scholars and intellectuals are of that opine that a private carrier must not be ‘bailout’ by tax payer money. Clearly, indicating that airlines have nothing to do with COMMON MAN. And to rescue an ailing luxury company with pouring tax payer money is highly unethical. Very true.
So before moving ahead it would be not much painstaking to remind ourselves with some more stark truth!!
- Earlier to Reliance foray into telecom industry, having a mobile phone was a luxury. Land-line phone was the paraphernalia of rich and obviously not the COMMON MAN. It was Reliance who offered mobile handset in the range of INR500-1000 first time in India. Make phone calls dirt-cheap, even almost free. They (Ambani) show the opportunity in billion plus population without phones. They focused on volumes. The pricing-war started by Reliance, not just give the pride & privilege to masses but also left the companies on very thin margin. And now companies in this particular industry are bleeding because of high operating cost, heavy capital investment and shrinking revenues.
- Insurance sector, which project him more altruistic than profit-seeking entity, open to private player in 2000. And now with 23 players, most of them decade old very few have reached to their break-even. Insurance sector is a very capital intensive industry coupled with long gestation period & cut-throat competition. Every player ‘leverage’ capital from ‘external’ sources to capture more shares of this billion plus population without having any life-cover to secure themselves from any eventuality. Bharti-AXA Life Insurance made an unsuccessful attempt to offload its share of cash-guzzling company to Reliance. And this is not alone the story of Bharti-AXA but many of its competitors are facing the tough time for a long and looking for exit.
- Now here comes a man named Capt. G.R. Gopinath. One day on his way to Banglore in his helicopter he saw the roofs of thousands people with having T.V.antenna’s. He tagged them as ‘aspiring’ people and thought visualize that everyone is using Air carrier to travel, if not frequently, than once in a while. He decided to open the most coveted & sophisticated industry to COMMON MAN or say TAX PAYER. Result was Air Deccan with ticket booking price was started from INR 1!! Billion plus population of which 400 million belongs to middle class which is more than the population of US an EU with deep unfulfilled desire to fly. Of which 15 million people travel by train of which 700, 000 people travel in AC coaches whose fare was hardly differ from Low Cost Carrier, India's first no-frills airline, Air Deccan, commenced operations in August 2003. And what was started with Air Deccan in 2003 a PRICING WAR to tap this market is responsible to current mess in the industry.
"It hit me like a ton of bricks. This country has a population of a billion, but only 15 million air passengers. May be the time is right. If one billion people can fly, and we get a miniscule percent of the market, imagine how big that will be? It's not an impossible dream. " - Captain Gopinath, in The Hindu, Sunday, August 15, 2004
Subaratao Rao (Sahara group), Kushal Pal singh (DLF), Jay Praksah Gaur (JayPee Group), Gautam Adani (Adani Group) and many more has touched the height of success and glory in their life-time. Other than Ambani, these personalities also came from very modest families and set the benchmark of exemplary successful life for the generation to come. With die-hard-attitude of “Think Big” and “No Dream Too Big” they established their own business empire. And become the source of inspiration for millions. Above mentioned brief of three different sectors have been touted to touch and transformed the life of common people by the ‘ex’-common people, at least in case of Telecom and airline sector.
DLF become successful because of which man in the politics? JayPee become a full-fledged business conglomerate because of whom blessings? Subaratao Rao was closely associated with which political party/personality? Reliance Communication was become quiet invincible and kicked all the rules because of which minister?
So, if everyone is building & harnessing their own connections than why we are so indifferently infuriated over business-cum-political clout of Vijay Mallaya? And please forget not the above mentioned name was of the men who were COMMON before becoming extraordinary.
Before moving forward into the intricate nitty-gritty of Kingfisher Airline and other business-as-usual-aspect let me explicitly say that it is the outcome of Cap. G.R. Gopinath’s wishful thinking to air-travel almost every Indian by air with ‘affordable price’ that is hugely responsible for current financial strain in Indian airline industry.
Well, there are certain established model and premise of business. We have pricing theories, segmentation, diversification, merger & acquisitions, tie-ups & join-ventures, different investment channel and so on. All these things are there to set-up, facilitate and then run a business for profit. And Vijay Mallaya relentlessly practiced all these business models, strategy and tactics to give new scale to his brainchild- Kingfisher Airline. Let’s have some brief about this flamboyant and often termed as Richard Branson of India.
Vijay Mallaya, a well-renowned businessman in national and international domain of business and highly influential people, owner of United Beverages group who has diversified interest ranging from wine to sports. He also happened to be the former Member of Parliament from Rajya Sabha. Vijay Mallaya founded the Kingfisher Airline in 2003 but launched in 2005 with lots of fanfare as gift to his son Siddhartha Mallaya on his 18th birthday. Kingfisher Airline was started as a premium air carrier, best Indian airline as a symbol of service and experience. Kingfisher Airline positioned itself as world class airline for those who seek quality and experience.
To keep Kingfisher Airline afloat Vijay Mallaya did certain things which might be running as pieces of advice in your mind. Other than forming joint-ventures (cartels), acquisition of low cost carrier to diversify risk and simultaneously to augment the revenue, he leveraged from conventional and hybrid source aggressively. Found himself around the low-ticket war from no-frills air carrier Vijay Mallaya also brought Air Deccan from Captain G.R. Gopinath in 2007 and named it as Kingfisher Red to tap the ‘cost-conscious’ Indian travellers along with Kingfisher Airline as a premium brand epitome of service and experience. Service and experience comes with cost so the operation cost incurred by Kingfisher Airline was higher than its peers. And here is the point which we can rebuke Mr. Mallaya not to be prudent enough to contain the cost.
But it was the business model of Kinfisher Airline and its positioning! And to cater the cost-conscious customers in low-cost carrier model Vijay Mallaya has bought Air Deccan later renamed it as Kinfisher Red.
Things started turning unexpectedly uglier since the onset of financial crisis for Kingfisher Airline. Other than buying Air Deccan from Captain Gopinath, he entered into an alliance with Naresh Goyal promoter of Jet Airways in 2008 to augment some revenue source for cash-strapped Kingfisher Airline which since its inception has not tasted profit. This move was too criticized by the critics and termed it as cartelization to exploit the customers.
In the sector where below-the-belt pricing was norm Kingfisher Airline is not the alone to face the odds. Other players from government Air India to Jet Airways were also in red zone. In late December 2011, only IndiGo was the single company who is running in profit rest other 5 companies of the sector is posting losses. So if every other player is facing the same financial strain I bound to think that something must be rotten beneath the balance-sheets of the companies.
The debt burden of SpiceJet is 711 crore, for Kingfisher its 7,543 crore and for Jet Airways India it is 14,213. Source Capitaline. Add this reading to initial figures of several companies. Now just think if Kingfisher Airline with its Enterprise value of 8,412 is really the matter to make such biased outcry.
So despite of such hefty debt burden, how these companies and their promoters stood against all intimidate straight-forward challenges?
Well, the system or say the Value-system has this mysteriously magical answer. The system not only motivates them to take irresponsible audacious risk but also pamper & reinforce them when they fall like ashes from the zenith. We (risk-takers) are born & grown-up in an ecosystem which encourage the ‘survival of the fittest’ paradigm, foster the irresponsible risk-taking behavior on the premise of coveted and complex (financial) model and with a guaranteed sense of assurance if something turns bad you will be bailout or rescue at the cost of common man- the weakest in the chain.
Vijay Mallaya knows this thing very well and every other men in his circle has blessed with this enlightment. When every news reporters, anchors and analysts were busy to reprimand him, Vijay Mallaya was brainstorming with his advisors with equally eyeing for two other things to happen. Vijay Mallaya is waiting to get entry into OneWorld with which he has signed an agreement and opening of Indian Airline sector for Foreign Direct Investment.
After shutting the operations of its low-cost carrier Kingfisher Red, entry of Kingfisher Airline into the OneWorld Alliance in February 2012 would be a potential life saver. As per market reports this alliance has 12 airlines in the club like British Airways, American Airlines, Cathay Pacific et al that serve 750 airports across 150 countries, Kingfisher Airline, will benefit by being able to provide its customers a greater range of connectivity to destinations covered by the member airlines. As per the latest news report government is also mulling to give the final nod to the FDI in Airline sector. So both these move would be quiet soothing for Vijay Mallaya who has envious relations with marquee international players and investors. Permission of FDI might open the exit route for Kingfisher Airline. And, yes, please don’t buy this logic that government is doing or will do this for Mallaya’s sake, by this liberalization government intended to save the ailing Airline Sector.
Already Vijay Mallay has restructured his debt with a consortium of 13 banks. Under this debt restructuring exercise banks converted the debt of Kingfisher Airline into equity, that too, at premium. Ridiculously, these banks tagged the INR 60 per share against the prevailing market price of INR 40 per share. The shares of this ailing air-carrier has dipped to as low as INR19, resulting huge losses to the banks. Now, banks are worrying about their debt which converted into equity and now heading to become the Non-Performing Assets of banks. Mallaya successfully has passed his financial malaise on the balance-sheet of banks with this debt restructuring. And, ofcourse, this game is played by all the business magnates. Now this has equally become the necessity of banks with Vijay Mallya not let to go the ailing Kinfisher Airline bankrupt. They are bound to infuse fresh capital but seek certain amount of capital from Vijay Mallay’s side. Needless to say he is the liquor king of India with strong financial muscles.
And as far funds are concerned they could be raised through rights issue/GDR/QIPs/converting finance leases into sale lease back and leveraging future aircraft orders and pledging its promoter shares. Now the advisors of Vijay Mallay is considering to convert their rupee debt into foreign currency loans to cut debt as interest rates abroad is lower than India.
With having so much of cushion and so many options in hand provided this system who should do care and worry about debt problem!!!
Let’s now discuss the most important part, which is that devil responsible of this whole imbroglio of airline industry. Anyone who is abreast with the current happening in the industry can easily tell you the reasons of this financial complication (at macro level) which turned into economic muddle (at macro level) and now seeking political clutter. The problem for Kingfisher Airline is beyond its normal flight operations & management.
It emanates from high interest rates, rising fuel prices and depreciation of rupee. It owes dues running into crores of rupees to airport operators, oil companies, and lessors. Fuel cost accounts for almost 40% of an airline’s total cost and over past few months fuel price has been hiked by more than three times. This is not the case of Kingfisher Airline; this is ubiquitously applicable to whole industry struggling with extraneous factors to save their existence, and by and large the story of all sectors of the economy. Please keep in mind many of such extraneous factors become headache when they are miss-managed by over government agencies.
These poster boys (in today’s case Vijay Mallaya) of crony-capitalism thrive on the loopholes, gaps and ambiguities of prevailing laws and regulations. Cushion and scope provided by such mechanism not only motivate them to take ‘illogical & irrational risk’ but incentivize them in short-term in the form of awards and praising them here and there. Remember Ramalinga Raju of Satyam Computers.
Riding on the beleaguered ambitions these poster boys of India Inc. manipulate the facts, distort the truth, cook up the books, siphon off the funds, create Special Purpose Vehicles to fabricate the estimates & launder the ill-gotten money.
And our existing policy mechanism (monitoring & regulating) remain found to be mysteriously numb-dumb on these ill-happenings. Open its toothless mouth for a while when outbreaks like scam or bankruptcy had taken place.
We, human being, have a remarkable evolving history from primitive stone-age man to present modern man. We will keep evolving to create many still-impossible to reality. As we are evolving, the world is getting more dynamic and advance. So are its rules. Present form of toxic hybrid instrument of investment has proved to be more harmful as compare to extend benefit. Such kind of over-estimated & over-rated instrument & options, fuel the illogical behavior of individuals or groups, which create havoc for others and add woes to their suffering. These sophisticated & complex instruments “structured product “created by top-most brain of elite institutions hide more and tells less about their nature. And strengthen the negative aspect of ‘business-as-usual’ approach of ‘too-big-too-fail’ institution, where everyone is running hard to become too-big-too-fail. This prevailing wisdom where emotions have lost somewhere in oblivion and economics has been superseded by finance has put us into more uncertain time.
It would be very pertinent to quote here the lines of the then Foreign Minister of India, Dr. Manmohan Singh, during 1990s “Our Banking system and Financial institutions are at the core of financial infrastructure in the economy...but our financial system has delivered certain rigidities and some weakness which must be addressed now”. If we distill the meaning of these words he is undoubtedly trying to say that we have to become more liberal, open and market friendly. But what last financial crisis has taught us and the globe is that ‘certain rigidities’ of Indian banking system has saved it from this crisis.
So we must appreciate our inherit strength and be very conscious and mindful to rush for being labeled as ‘market friendly’. Our monitoring agencies and regulatory institutions should keep tab on such irrational borrowings. We need to understand this age-old system where few peoples get benefitted despite of their ill-doings at the cost of majority.
And if we honestly fed-up of such bankruptcies, bailouts and scams then we need to cure the root and not the symptoms such as Kingfisher Airline or Vijay Mallaya for that matter. Because the scene and headlines will be keeps replacing by name but the problems will remain the same. And many upcoming Mallays, Ambanis, Adanis, Gaurs will keep borrowing more than their means or enterprise value underlying the fact they have a system in place who promotes such efforts.
