Lies, Deception and Obfuscation of facts: that’s what it boiled down to in the “Press Conference” announced by Mr.Mallya to “explain the situation”. Well, what else could we expect? The “King of Good Times” has lost his shirt, something his ego finds hard to swallow. And the kind of show we saw today, has been on display earlier: one remembers the theatrics during the Shaw Wallace saga!
Here’s the summary of the news so far which prompted the latest round of theatrics. Kingfisher is bankrupt! No money to pay its staff, or for fuel or the airports or indeed the lease rentals of its aircraft. 4 of its aircraft have already been repossesed, and the sword looms over the rest of the fleet as well. The banks cant lend it more money nor can they show the same degree of benevolence as they did last time Kingfisher “restructured” their debt at public expense.
Vijay Mallya therefore came out to “set the record straight”: or so he would like us to believe! Brave attempt indeed, except that it doesnt convince anyone who is aware of the muck behind the glam.
I would like to present a point by point rebuttal of Mr.Mallya’s valiant attempt to pull wool over the eyes of the public.
Here is what he said in full.
I know all of you would like to quote a particular airline which is showing profits… you can also show profits through sale and lease back of aircraft.
The reference here is to Indigo which, perhaps with an eye on an upcoming IPO, is showing “cooked up” profits through sale and lease back method, where aircraft which are owned, are sold off to a leasing company and then leased back, allowing the accountants, through some skillful jugglery to show cooked up profits. No doubt, Indigo has a nice ponzi scheme of its own going on which seems to have got quite a few of the clueless journo’s barking up the wrong tree.
But what Mr.Mallya conveniently fails to mention, that his airline has been showing losses DESPITE resorting to the very same creative accounting that Indigo has been carrying on: albeit on a smaller scale. Will Mr.Mallya explain how many of his own planes have been sold and leased back over the years?
So creative accounting may explain Indigo’s profits, but the same couldnt hide Kingfishers problems: which perhaps is one indicator of the deep hole that the airline finds itself in.
We cancelled flights not because we couldnt afford to fly. Even today, we are operating the schedule that we have offered to our guests. The cancellation of 50 odd flights has been blamed on entirely wrong reasons….but it was a commercially prudent decision. We cannot as a commercial company afford to fly routes that are commercially loss making. We are not in the same arena as the national carrier Air India, that perhaps has a national duty to perform with the Govt as its shareholder. We are accountable to our shareholders and investors…
Mr.Mallya comes out with this indefensible and thoroughly contradictory statement. On one hand he says that Kingfisher is not in the same arena as Air India and so cannot fly unprofitable routes as a social service like the national carrier does. On the other hand he also says his airline is aware of the social responsibility and so has not pulled out of routes where they are the sole airline providing airlinks!
For one thing, Kingfisher till very recently had outsourced the social flying obligation to air india by block booking seats on AI flights to Tier-3 routes instead of operating them on their own. Two: if Tier-3 routes are the cause for the lack of profits, why arent the flights to Hubli or Tuticorin facing the axe, instead of say Delhi-Hyderabad or Patna? The simple reason being that the Tier-3 routes with no competition gets them better yields than the metro routes where they are crowded out by the competition. Ofcourse, Mr.Mallya chooses to window-dress this fact and that alone can explain the contradiction! But the fact remains, that “flying unprofitable routes” is not what caused KingFishers current sorry state: the reasons for that lie elsewhere!
And the fact remains, that if commercial decisions warrant the closure of a route, the right way to do it is to not publish it in your schedules and not take bookings against flights that you do not plan to operate. The DGCA has specific rules that specify precisely this. But this is precisely what Kingfisher did: they published schedules, took bookings from passengers and cancelled flights at the last minute. At the time, we were told by his own PR staff, that the cancellations were for aircraft re-configurations, and now we are told that the cancellations were because the routes were unprofitable? If they were unprofitable, why publish the schedules? Why accept bookings? Why block valuable slots?
This is precisely because something unforeseen happened between the time the schedules were rostered and published and Nov 2 when their operations’s first started going haywire. We know what these are, but a discussion on those factors will be a separate topic. The point here, is that Mr.Mallya is deliberately obfuscating facts when he says that flight cancellations were a “commercial decision to cut losses”.
His CEO later makes the wholly untrue claim of having kept guests informed throughout the cancellation saga! Well, if this had indeed happened, would the country have witnessed the scenes at the airports that we did Mr.Agarwal?
Mr.Mallya then goes on to rant over the “ad-valorem” state taxes. Fair enough. It is nobody’s case that the tax structures in India dont need a relook. But it is also a fact that the same competitive environment exists for all the players in the market. Once again, the sorry state that Kingfisher finds itself in cannot be put down to this.
Mr.Mallya has basically listed a number of, well, “reasons” for the mess his airline finds itself in. However without solid reasoning offered for them, they remain but pathetic excuses for incompetence.
What are the reasons for the mess that Kingfisher finds itself in? Well for one, the cost-structures for the 5-star service on offer can only be sustained when they can start charging the premium for such a service. And the indian market has ruled that it is unwilling to do that. A random check on fares for 11 metro routes on a portal like makemytrip reveals that Kingfisher is often the cheapest on a route after Low-Fare Carriers like Go, Spicejet and Indigo with other Full service carriers like Air India and Jet charging between 400 and 1200 more expensive on the same route. The 5-star service comes at a price. The question is: are they recovering it?
Second came the mad rush for market share. Jet went in for Sahara for precisely the same reason: capturing a chunk of market share at enormous cost. Kingfisher tried the same when they acquired Deccan, the added benefit being acquiring the right to go international due to the 5 year rule. Along with Deccan came the accumulated losses of that airline. The only reason Jet does not find itself in a similar mess is perhaps they got loans far cheaper than Kingfisher due to some prudent management. With a more rational management at the helm in Kingfisher, perhaps they would have got the same. But rationality is hardly something the country expects from the King of Good times.
Third ofcourse was the massive influx of capacity that far exceeded the demand which forced all carriers to under-price their offerings in an attempt to get bums of seats. Kingfisher ofcourse did the same to stay in the business. This isnt something that can go on for ever. The game here is who dies first. Being more highly leveraged than the other players, meant that Kingfisher was always the most at risk in this high-stakes game. And that is precisely what has happened.
Last but not the least, the loss of their benefactor is a key factor in their current woes. The former Civil Aviation Minister, a known family friend, whose entire family was known to travel around the world in Mr.Mallya’s fleet of private jets, is no longer the toast of the town. Infact, UPA-2, weary of the all the scams has discarded Mr.Praful Patel for fear of carrying one more albatross around its neck. And the loss of Praful Patel has meant the loss of their chief benefactor. He was the guy who got Mr.Mallya’s airline the plum routes. he was the guy who got the national carrier to withdraw out of routes so he could start flying with lesser competition. And he was the guy who managed to convince the banks to give the King of Good times the easy treatment when it came to debt-restructuring!
I still would like to know from Mr.Mallya (mr.Patel will not answer) how his airline, hemorrhaging with mounting debts, managed to get such a sweet deal from the State owned banks! I mean imagine getting your lenders to virtually waive off the debts by converting them to equity, and that too at a PREMIUM of 160%!!! It happens perhaps only in India! I would like to hear from Mr.Mallya how he managed to swing this sweet deal. And i know, he has made it amply clear on twitter that he is not looking for a bailout but another round of debt-restructuring from the same banks. I am sorry Mr.Mallya, but a bailout, by any other name, would still be as bitter!!
I would also like to know from Mr.Mallya, that if his airline is really not in financial trouble, then why his staff have not been paid for over 3 months now? Or why the leasors are reposessing planes as we speak? Or why the fuel companies are stopping fuel supplies?
The reason the airline is in such a mess can be traced to poor management. And for that Mr.Mallya himself is to blame. For a man who likes to paint himself as an Indian version of Branson, he has shown little talent for running an airline. Which explains perhaps the strange deals for aircraft being struck on his yacht in the middle of the ocean. While competitors like Indigo place orders for 150 aircraft after some hard bargaining, Mr.Mallya was negotiating orders on a different rationale: like a child in a toy store he wanted 5 aircraft of EVERY type! That explains the orders for 5 A320′s, 5 A330′s, 5 A380′s, 5 A340′s and 5 A350′s placed in just one year. And that wasnt the only year when we saw this kind of eccentricity now was it?
A final word in closing: while Mr.Vayalar Ravi and the Prime Minister were scampering around to save his airline from extinction, while his staff were fretting over unpaid salaries, while banks were wondering whether they wille ver recover their lending to Kingfisher, Mr. Mallya was ranting away on twitter from the sidelines of the Formula 1 in Dubai! Enough said… Move over Mr.Mallya, we have had enough of your dramatics!
