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No bailout for Kingfisher, says Indian minister
India's civil aviation minister ruled out a public bailout for India's Kingfisher Airlines or any other airline, urging private airlines in India to put their own house in order.
November 17, 2011 3:57 by Reuters
Cash-strapped Kingfisher Airlines, the country’s No.2 air carrier by market share, saw its quarterly loss double and cancelled scores of its flights this week.
“There is no bailout scheme or plan by the government for any of the private airline before me,” Valayar Ravi said during a private visit to Sharjah in the United Arab Emirates.
Reports this week said that the government had decided in principle to allow foreign airlines to own up to 24 percent of Indian carriers, a move that could throw a lifeline to Kingfisher and its struggling rivals such as Jet Airways and SpiceJet.
“There is a representation by many institutions and people for some kind of FDI. But the government has not taken a decision on it. It all depends on the financial policies,” Ravi said.
Kingfisher chairman Vijay Mallya, the liquor tycoon who owns a cricket team and a Formula One racing team, has said the government should allow foreign airlines to buy stakes in Indian carriers.
But Ravi said managements have the main responsibility for the health of their investments.
“In totality the managements should also be very careful.”
When asked if Kingfisher Airlines was mismanaged, he said: “That is for him (Mallya) to decide whether he managed it properly or not. If mismanaged, he will pay a heavy price.”
Industry executives have blamed Kingfisher’s problems on various factors including its purchase of a low-cost carrier and a mixture of weak oversight and different fleet types, which are most costly to operate.
FUEL, SALES TAX HIT PROFITS
Kingfisher’s competitors such as private carrier Jet Airways, budget airline SpiceJet and the national carrier Air India have all been facing losses in the face of rising fuel costs and sales tax by state governments.
The Centre for Asia Pacific Aviation has forecast a record $2.5 billion to $3 billion loss for Indian airlines for the year ending March 2012, with state-run Air India alone likely to account for more than half of it.
“In India, the problem is the sales tax. Every state is making a major income from it for their exchequer. I requested chief ministers not to do that. Only two or three states including Kerala and Andhra Pradesh reduced it,” Ravi said.
The fragility of India’s fast-growing aviation sector weighed on the Dubai Air show despite more than $62 billion in total civil aerospace and defence orders.
“I am beginning to become seriously worried, but so far we are just watching to see what happens,” a senior executive with a supplier to the Indian aviation market said.
Another said it could take about $400 million dollars for Kingfisher to be rid of investor anxieties but that there was no sign of leasing companies or creditors reclaiming aircraft.
But another official with business links with the company said reckless press coverage was aggravating the situation and predicted Kingfisher would pull through.
None of the executives agreed to be quoted because of the matter’s sensitivity.
Planemaker Airbus so far appears to be supportive of the company after Kingfisher’s Mallya said they had agreed to postpone delivery of 5 A380 superjumbos to a yet unspecified date. Aircraft have to be paid for on delivery.
“Fuel price is the major issue before us. We are trying to represent this matter on how to get over this crisis. Air India also has the same problem and we are under discussion on how to get over that.”
Despite the country’s proximity and strong business links, Indian airlines did not have a strong presence at the Dubai air show, although Jet Airways founder Naresh Goyal paid a visit and toured the Boeing 787 Dreamliner of which his airlines has 10 on order.
Driven by liberalisation and the growth of middle classes, India is nonetheless a big part of the growth story touted in Dubai this week despite economic malaise in the West.
Manufacturers and suppliers in Dubai expected this growth to continue almost unabated despite the economic crisis in developed markets. (By Praveen Menon and Tim Hepher)