Global Monitor: Mallya blues as Kingfisher Airlines loses height rapidly

Published on Saturday 20 June 2009 14:46

KINGFISHER Airlines of India promised passengers the royal treatment – flight attendants so comely they were called "flying models", full meals even on short flights and kerbside valets to carry their bags.

But how the mighty have fallen.

Short of cash and unable to pay its bills, the company, owned by Indian tycoon Vijay Mallya, has had to take on debt from India's government-owned banks, pledge assets in exchange for loan guarantees, postpone delivery of new planes and search for a foreign investor.

Airlines around the world are suffering as businesses and individuals cut back on travel, but in India, by some measures, they are suffering more. And analysts say that in the months to come, Kingfisher, one of India's top domestic carriers and one of the country's most recognised brands, may be in for more pain than any other airline.

Kingfisher's troubles present a cautionary tale for investors and suppliers eager to do business in one of the few major economies still experiencing significant growth. Even as incomes and consumption continue to rise in India, success is not guaranteed – nor is a smooth ride.

Of the $9 billion that the International Air Transport Association estimates the global airline industry will lose in 2009, nearly a quarter will be lost by Indian airlines, which fly just 2 per cent of the world's passengers.

For India's private airlines, "the next six to nine months are about survival", said Kapil Arora, a partner with Ernst & Young's aviation practice. To make it, they will have to cut costs relentlessly in marketing, technology and payroll, he said.

Even that may not be enough. After resisting for years, the Indian government is considering letting foreign airlines take a 25 per cent stake in Indian carriers. But the rest of the world's airlines are short of cash as well. "It's going to take active government involvement" to keep India's airlines in business, Arora said.

For Mallya, whose empire also includes Whyte & Mackay in Scotland, cutting costs could be difficult.

Known as the "King of Good Times," he pursues a lavish lifestyle that includes a collection of hundreds of sports cars and a villa on the French Riviera. He built Kingfisher as a "premium" airline and, when passenger numbers were growing, placed big orders for planes, including five A380 superjumbo jets from Airbus, even though Kingfisher had never turned a profit.

In an email interview, he brushed off suggestions that the company was struggling for survival. It will turn a profit in the next fiscal year, he said, and a $500 million loan, arranged by the State Bank of India, is sufficient to keep the company going this year.

He was also confident about finding a foreign investor willing to take a stake. "We are in discussion with private equity investors," he said.

Bankers and analysts say Mallya's target price for any deal is as high as eight times Kingfisher's stock price, which has fallen more than 80 per cent from its peak in late 2007. He would not confirm that figure but said: "There is handsome value for the largest carrier with the widest network in a country with great potential such as India."

Still, such a premium could be difficult to come by even in good times.

Kingfisher lost $219m in the nine months that ended in December, the most recent figures available. India's other large private airline, Jet Airways, reported a slight profit for the first quarter of this year, in part because of former tax credits.

Kingfisher still owes $100m to oil companies for jet fuel it bought in 2008, Mallya said.

Those payments will be made by November.