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The King in bad times

The King of good times too is going through his share of rough phase. His ‘guests’ (Mallya addresses passengers this way) are now literally red at him with 40+ flights being cancelled everyday. Mallya and his associates reason that Kingfisher airlines is running out of cash.

eynjuls King in the bad times

Vijay Mallya’s Kingfisher airlines is said to be in losses for the past 6 years, which is hard to believe given the way his guests are pampered and also his enviable lifestyle. With around INR 7,000 crore debts, Mallya is said to have sought Government’s help to clear them. The debate has already begun on Mallya’s lavish living, Kingfisher’s business model and on whether Government should involve in clearing this mess.

So, should the Government bail out Kingfisher airlines? The issue can be scanned as follows:

If yes, why?

  • Kingfisher airlines is India’s second largest carrier. It contributes a lot to the Indian economy and especially to the Travel and Tourism sector.
  • Kingfisher is a brand that represents India internationally. It is equally important for the country to retain that brand image.
  • Kingfisher airlines is a delight to most of the local and international customers, given the way they are treated in there. So, many such customers would be in a huge disappointment if the airlines stop functioning properly and that would surely hit India’s reputation.
  • Indian Government is renowned for the way they extract taxes from Private sector companies and Kingfisher is no exception. So, what is wrong in helping them out? Help could in the form of a loan.
  • Taxes and Fuel price hike: A significant percentage of the money earned in Aviation industry goes for taxes and other expenditure. This is actually not a highly profitable industry, given that the prices of Air tickets have come down gradually.
  • Kingfisher airlines is known for its world class comfort accorded to every passenger at a competitive price. So, why would we want such an airline to call it a day and discontinue its services? Mallya surely has a lavish lifestyle, at the same time he is letting us to experience its flavor an economical price.
eynjuls the king in bad times

Good times guaranteed!

If no, why?

  • Kingfisher is a Private sector company. So, if one company like Kingfisher is supported by the Government, others will always want to follow the suit. Because, apart from IndiGo Airlines, almost all other airline companies are in a crisis, thanks to the fuel price hike and the huge amount of taxes they are supposed to pay to the Government.
  • The obvious question will be, why only Kingfisher? Many other corporates and individuals are going through huge problems. Will the Government help them all?
  • Business ethics: I don’t think it is a Best practice to seek Government’s interference as this is a Private sector company. And was the business model and strategy so weak that the company had to run in losses for 6 long years? If so, why didn’t Mallya call for help earlier? Was it his boldness that made him buy a Cricket team and a Formula One team? He could have instead used that money to stop his much admired airlines from sinking.
  • If we consider Mallya and his son’s much enviable lifestyle, it is difficult to believe that he is running out of cash. Why don’t he stake his personal net worth to keep the Kingfisher flying?
  • Government or Banks will inevitably use people’s money to clear this mess. Why should people be in trouble?

Reasons are many. Argument is strong on both the sides. But I feel that the Government should help Mallya in making a deal with Oil companies to extend the payment period or discount the amount to be paid instead of direct financial help. Hope that the issue is resolved soon.

Images source: Google Images

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10 comments

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  1. crabby

    kingfisher is not only representing India internationally by its Airlines but had also been sponsoring the Force India Formula One Team which is part of the F1 races conducted worldwide. so government should take a chance in giving a hand to Mr. mallya to cope with his current position.
    its so well written dear….!!!! keep going…;-)

  2. matheikal

    Many other airlines are managing their business quite successfully with much lower fares compared to those of Kingfisher. Take for example the many low-fare airlines like Indigo and so on. Why Kingfisher with its very high fares (in comparison) has not been able to manage is a question that the Mallya don has to answer. No, the tax payer’s money should not be misused for bailing out a man who throws money into all kinds of businesses including selling calendar girls.

  3. Bikram

    Why bail out , has he not made enough money already with all the business he has , why cant he himself bail the airline out of trouble ..

    No I would not like taxpayers money going ot waste again .. when he has enough resources to do it himself

    Bikram’s

  4. Vishal

    Well, it’s the civil aviation ministry’s duty to work something out for KF. Just like it’s the duty of any governing body to see what they can do for a sick organization under them. Plus, Mallya has asked the GoI to intervene to have them restructure their debt; asking the Govt to fund them may be a tall order considering the govt’s fiscal deficit itself is higher than approved. Then again, Mallya has very good relations with the government; in fact, he stood for the last election as an MP. So don’t be surprised if the govt. hands out some 2-3000 crores for KF Airlines.

  5. Ashok Jain

    KF is best example of bad management , Bail out is not at all good for any pvt firm , it will raised bar for all other Pvt firms.

  6. Harsha

    crabby: Yeah, the Force India team is owned by Vijay Mallya which is undeniably a matter of significance for India. Thank you :)

    Matheikal: IndiGo is surely running in profits with comparatively low prices. I too agree that tax payers money shouldn’t be at stake. I think Mallya failed because of bad management and trying to over indulge his passengers.

    Bikram: Agree, Mallya can surely resolve the issue on his own.

    Vishal: Good point. Civil Aviation has to do something to help Mallya out. But complete bail out is not something immediately possible given that they are couple more airlines which are facing problems and they too may come out for some ‘help’.

    Ashok Jain: Yeah, ‘Bad Management’ is the word.

  7. subhorup dasgupta

    I feel the KF fiasco is only an indicator of the economic crisis that we are in. Corporations are supposed to make profit by providing value to the customer. Here we have a situation where financial institutions have continued to invest in a loss making corporation over years and regulators have permitted debt to be converted to equity without questions. Is it not likely that there are many, many more KF Airlines waiting to happen, with huge lending in the realty, energy, and telecom sectors? What would become of our banking sector if that were really to surface? I recently wrote about this on my blog too.

  8. Megha Sarin

    WOW! Great post!
    Why should the taxpayer’s money be used. They can afford a lavish lifestyle, cant they take care of the airlines.

  9. Harsha

    Subhorup Dasgupta: The scenario is such that Mallya has come up stating the issues KF is facing and others haven’t. But most of the airline companies are traveling in the same boat. Stats say that AI is in losses for the past many years, but just because it is a public sector firm, funds could be generated. And financial institutions are investing, but then I think Banking and Finance is one of the shrewd sectors in our economy.

    Megha Sarin: Thank you. This is one point many agree with.

  10. Abhirup

    Hi this is abhirup here. I run a popular business blog http://www.ideasmakemarket.com. I would love to post articles from you. All articles are posted with full credits. If you like the idea drop me amail at ideasmakemarket@gmail.com
    regards.

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