Vijay Mallya faces possible collapse of its debt-ridden airline kingfisher. It has never really made any profit since its inception in 2006. It is weighed down by debt of $1.7 billion and has been struggling to pay salaries and fuel bills. It reported a net loss of $200n million in the last fiscal year ended March. What has made the situation worse is that it coincided with high rate of inflation and low industrial growth in the Indian economy. Airplane-leasing companies are planning to repossess planes from India’s Kingfisher Airlines Ltd if the companys’ condition deteriorate further.
Does it mean that the Airline should be bailed out? Mallya claims that Kingfisher has
been making losses due to the huge burden placed on the Airline sector in India.
These includes high sales tax on aviation fuel (there has been a 70% rise in
the cost of the fuel) and the obligation to operate uneconomical flights in areas
Inspite of this Indigo has consistently been making profit.True the tax structure of aviation fuels in India needs to be rationalised but Kingfisher owes its troubles mainly to gross mismanagement of the company’s affairs and poor strategy.Now it cannot expect the Government to use taxpayer’s money to bail it out.In a capitalist economy any company which is inefficient and cannot survive must cease to exist.The government allows many small industries to go out of business if they default in bank payments.Bailing out Kingfisher will reek of crony-capitalism.
Steps taken to control the crisis :The Airline has decided to withdraw from loss-making routes.It will also stop its low-cost carrier Kingfisher Red.
The Govt. decided to allow Airlines to import fuel directly to avoid sales tax levied by the states. The Industry Ministry has also moved a draft Cabinet note on allowing 26 per cent FDI by foreign airlines in the domestic carriers.The banks have been asked to restructure kingfishers debt.Banks converted some unpaid loans to Kingfisher into equity at a favourable premium.
If these steps fail to reek dividends then Vijay Mallya’s assets should be attached to pay off his creditors if he seeks a restructure of loan.Heowns UB group and has stakes in IPL team Royal Challengers Bangalore,Formula 1 team ,NDTV Good times and also football teams in Bengal.If kingfisher defaults his Mallya should be asked to sacrifice his assets for the larger interest of the nation.