Kingfisher Airlines: Vijay Mallya wants to bounce back

Vijay Mallya, the flamboyant owner of the United Breweries group and the troubled Kingfisher Airlines, is open to constructive criticism. He is willing to take suggestions from lenders on possible management or board changes to revive the flagging airline. He is also talking to potential strategic and non-strategic investors and looking forward to the government notification on allowing foreign airlines to buy an up to 49 per cent stake in domestic airlines.

He wrote to the airlines' employees on Monday that junior staff would be paid salaries on 4 April 2012 and pilots on 9 April. Engineers will be paid on 10 April. He told the staff in an email that the company’s bank accounts were unfrozen after paying Rs 44 crore to the income tax department and Rs 20 crore to the service tax department.

Kingfisher last Tuesday said that it temporarily stopped operations to several destinations as per its revised flight schedule, and most employees at those places have been asked to "stay at home." The company called it a ‘holding plan’ ahead of recapitalization.

Vijay Mallya sent an email response to NDTV queries recently.

Here are excerpts from the exclusive interaction:

You had mentioned after the meeting with the DGCA that KFA will be operating a holding schedule for now. Could you share with us in greater detail the turnaround plan for KFA?

The "holding" schedule has been filed, announced and is in operation. In the media release we have stated that post re-capitalization we want to bounce back as a major player and utilize the full fleet.

DGCA mentioned after the meeting that he is not sure how KFA will be able to make its repayments. Your comments?

The DGCA is justifiably concerned with safety and financial resources to ensure operational stability. We have submitted a plan which includes daily operational cash flow.

You had mentioned de-freezing of KFA’s accounts will enable you to make payments to staff and other vendors. Can you indicate what is the approximate balance in these accounts? Is it sufficient, given the size of pending payments? Tax officials in Bangalore have also indicated to us that there is negligible balance in these accounts.

The Income tax installment as directed by the Hon'ble Appellate Tribunal has been paid, which de-freezes  our accounts. Contrary to your understanding, sufficient cash was available.

By when do you expect to pay salaries to KFA staff – any specific dates that have been fixed?

We have funds stuck in various accounts (over 50 accounts were frozen) and as each account has been de-frozen and we have access to our funds, the immediate priority is to pay salaries.

Both DGCA and Civil Aviation Minister (MCA) have said that KFA’s financial stress can lead to safety concerns; non-payment of salaries to pilots, technical staff etc poses a risk, in their view. To put it more directly – it’s unsafe to fly planes when staff, like pilots, have not been paid.  Your comments?

While non-receipt of salary is an understandable hardship, we have very clearly told our operational staff that it is entirely their wish and at their absolute discretion whether to fly or not. We do not believe that any employee would operate an aircraft in an un-safe manner.

Both DGCA and MCA have used strong language to describe the state of affairs at KFA, saying ‘things cannot go on like this', and that if it does, ‘KFA’s license can be cancelled’. Your comments?

We respect the fact that the DGCA and MCA have wide ranging powers. They can exercise any discretion in a judicious manner after following due process.

The banks have indicated that KFA needs to bring in capital for them to be able to extend further credit. Could you share with us what funding / investor options KFA is exploring?

The Consortium of Banks has maintained and we have concurred that the Airline needs additional equity. We are, therefore, awaiting the final decision on FDI from Government as valuations from strategic investors are more realistic. As we have previously stated, we are in discussions with both strategic and non-strategic investors.

Analysts say that further credit from the banks could be conditional to changes in KFA management / board. Are you open to such changes, if required?

The banks have never indicated any requirement for changes in the Board or Management. However, we are open on this issue and are willing to consider any meaningful suggestion.

Will the promoter companies be making further investments in KFA?

The promoters and their associates have already invested Rs 1,300 crore over the past 12 months.

According to industry experts (like Centre For Asia Pacific Aviation - CAPA) the total exposure of the promoter companies (UB Holdings, USL etc) to KFA is to the tune of Rs 9000 crore. Is that an accurate estimate? Is it possible to get a break up of that (or the correct) amount?

Firstly, we cannot understand how CAPA is qualified to comment on promoter companies.

 

The promoter guarantees are from UBHL only, backed by a personal guarantee from me. USL/UBL or any other group company has not given any guarantees or pledged any assets towards KFA loans. The guarantees are relevant after the pledged assets of KFA itself are realized which form the primary security. However, we are far away from guarantee enforcement at this stage.

Is there a concern that KFA’s current troubles could impact the promoter companies (UB Holdings, USL etc)?

There are clear cut walls between various business verticals with no cross exposure. UB Holding has, indeed, given guarantees but other Group companies such as United Spirits, United Breweries are fully insulated.

You have argued that KFA’s crisis is a result of sectoral troubles – high ATF costs, airport charges and so on. If so, how would you explain the success of other airlines, like Indigo?

The entire aviation sector in India is facing severe financial stress. The most significant impact is the high price of ATF compounded by the punitive ad valorem sales tax imposed by the state governments. We do not want to comment on the financial performance of other airlines except to say that sale and lease back of aircraft is a source of considerable income.

Do you believe that you made any wrong calls over the past seven years, and if so, what would they be?

We are open to any constructive criticism. We may have made mistakes but certainly not to the level being suggested by non-experts.

Some analysts believe that much of KFAs troubles are due to judgement errors. For example, the decision to switch from single class carrier to full service, and the purchase of Air Deccan, so that KFA could operate international routes.

Hindsight is always better and gives people a platform to be critical. Kingfisher never intended to be a no frills single class carrier. If our acquisition of Air Deccan was wrong, I wonder why Jet [Airways] operates three different products - full service, Jet Konnect and Jet Lite. 

Our decision to exit KF Red (single class) and reconfigure our aircraft into a twin cabin layout with a small business class and more economy seats, was heavily criticized by media. However, we find that Air India is also doing the same.

What sort of future do you envisage for KFA going forward? Are you reconciled to operating a scaled-down airline? Is it viable for KFA to scale up to its earlier capacity?

With adequate capital it is relatively easy to scale back up to earlier capacity and more. There are plenty of Airbus aircraft available for lease in the global market at attractive rates.

Capt. Gopinath told us in an interview that the original plan was to have separate airlines and separate brands, but that after the creation of Kingfisher Red the brand was blurred, and KF lost its identity. He says that he wrote several times to the Board that the financial model was going to take the airline down and that as far back as 3-4 years ago, several aircraft were down for want of parts and salaries were not being paid. He also says you would have been the best available CEO for the airline but you were never around.

We do not wish to comment on statements made by Capt Gopinath whose airline track record (passenger and cargo) speaks for itself.