Business Standard

Shyamal Majumdar | Show the cash, Mr Vijay Mallya

In a meeting later this week, bankers will insist on a commitment on funds. But many say Kingfisher better not fly again under a promoter who just blew money trying to run a glamorous airline

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The king of good times, or shall we say once-upon-a-time king of good times, has one pet peeve at the moment: the media which is bent on running him down. If Mr Mallya’s tweets are to be believed, Indian newspapers have no credibility.  And at the Indian Grand Prix last month, the tycoon was at the F1 track, cigar in hand, publicly reprimanding the media for its “obsession” with .

In a democratic country, Mallya is entitled to his opinion. So what if his son, who got Kingfisher Airlines as his 18th birthday gift in 2005, was found tweeting seeking votes for himself to win an award for the Digital Man of the Year around the same time news flashed that a Kingfisher store manager’s wife had committed suicide because of financial stress? On his part, the father blamed the media for blowing the suicide issue out of proportion. Even if one forgets the lack of empathy, didn’t somebody advise the flamboyant billionaire and his son that this was nothing short of a PR disaster?

While Mallya senior has been jetting in and out of India, the son had better things to publicise: he was found tweeting about playing volleyball with bikini-clad models, views on a London pub and every other object under the sun, except Kingfisher Airlines. He was also seen in a starring role in the promotional video for a televised “hunt for the hottest girl of the country”. Siddharth has sought to wash his hands of the odd timing of the promotional video by saying he has nothing to do with the airline.

Unfortunately, his father is not as lucky. Mallya senior has to meet a set of angry bankers later this week, who have given him an ultimatum to show the cash he is supposed to get from after the sale of a majority stake in United Spirits. The consortium of bankers, who have been treating him with kids gloves so far, wants him to provide $1 billion of capital into the grounded airline. After all, if he can announce an injection of over $80 million into his racing team, surely he should be in a position to infuse funds into his airline as well.

But will Mallya finally oblige the 17-bank consortium that has lent about $1.4 billion to his airline.  There is no clarity on the issue as Mallya is surely going to be a hard nut to crack. He has already sought to delink the Diageo deal with Kingfisher’s revival plan. In any case, no one knows how much exactly he would be left with after the sale of United Spirits goes through. A bulk of the money United Spirits and United Breweries Holdings will receive will be used to pare United Spirits' debt and release its shares, which were pledged by its founders to raise loans. Besides, Mallya has to pay money to pay Kingfisher’s staff salaries, airport fees and fuel bills to make it airworthy again.

So the best case scenario for banks is going to be as follows: the Kingfisher promoters agree to make a piecemeal payment (say, half of the $1 billion demanded by the bankers) to the lenders and draw them back to the negotiating table for fresh loans and another restructuring of the airline's Rs 7,000 crore bank loans. That may be inevitable as Mallya knows banks are not in a position to push him hard as they wouldn't recover anything much if the airline shuts down. Though that’s clearly his best bet, the fact is Mr Mallya has to finally show cash – at least some of it – if he wants Kingfisher to fly again.

Many, however, say Kingfisher better not fly again under a promoter who wanted to fly even before he learnt to walk. For example, there are instances galore of how Mallya just blew money trying to run a glamorous airline.  As a result, as of June 2012 quarter, Kingfisher’s expenditure as a percentage of its net sales was 304 per cent, compared to Jet and SpiceJet’s 96 per cent and 98 per cent, respectively (Source: Nirmal Bang’s Beyond Market).

Besides, humongous funding is required for the airline to stay afloat.  “The promoter needs to take a rational view on whether the airline can realistically be turned around. If the prospects look dim it may preferable to move on to other ventures. Business sometimes fail, there is nothing wrong in that,” says a report by the Centre for Asia Pacific Aviation.

Mallya would do well if he listens to that advice.

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