The Kingfisher Scam?

I wrote about public sector banks shoveling money to the telecom operators in this post:  The 3G Scam?.  Now we read this:  Kingfisher Airlines is NPA for us, says SBI chief.

New Delhi, Jan. 5:  

The State Bank of India said Mr Vijay Mallya-promoted Kingfisher Airlines has turned a non-performing asset (NPA).

“Kingfisher is an NPA for us. They are in default,” Mr Pratip Chaudhuri, SBI Chairman, told reporters here on Thursday.

SBI is the lead bank in the consortium that has funded this private airline. The country's largest commercial bank has an exposure of Rs 1,458 crore to Kingfisher Airlines, which is in a weak financial position and struggling to service its loans.

The other banks with significant exposure to Kingfisher Airlines are IDBI Bank at Rs 727 crore, Punjab National Bank (Rs 710 crore), Bank of India (Rs 575 crore) and Bank of Baroda (Rs 537 crore).

Just add up those numbers:  Rs 4000 crores has been given by our public sector banks to one private company which has blown it away.  The biggest bank has already declared its loan as an NPA.  Is this any different from a scam?

When will RBI make it mandatory for banks to reveal the full details of their NPAs and who owes them the money?

Low-cost The Way To Go?

Why some airlines are more profitable

Consider the figures: The two low-cost airlines IndiGo and SpiceJet reported profits of Rs 550 crore and Rs 61 crore in 2009-10. On the other hand, Kingfisher Airlines reported a loss of Rs 1,647 crore and Jet Airways reported a loss of Rs 420 crore. Again, in 2010-11, while Jet and Kingfisher posted losses, SpiceJet and IndiGo remained profitable.

Read the article to see why. 

Airline Woes

Airlines hit turbulence:

The ATF prices are very high in India because states levy sales tax or VAT on ATF between 23 to 35 per cent. Being a state subject for tax, the Centre cannot control ATF prices or make them uniform. Airlines complain that ATF prices in India are almost double than that of global rates and account for 40 to 45 per cent of operational expenses compared to 18 to 20 per cent abroad. In fact, compared to a country like Singapore, ATF prices in some states in India is almost 70 per cent higher, they say. Another factor that drives costs up is high salaries for pilots and crew members. Though, after the recession in 2009, salaries did not move up rapidly, wage cost for airlines is still very high.

How about salaries?  Do these airlines pay as much as airlines in other countries?  I think not.  And what about all those sweet loans from obliging PSU banks?  SBI for instance has the highest exposure to Kingfisher - about Rs 1,400 crores (SBI asks Kingfisher to raise fresh equity before debt recast).

Or maybe the problem is elsewhere?

Yet another reason cited for the losses is the overcapacity in the sky. In the last one year or so, airlines leased more aircraft, added many more seats, opened new routes and increased frequency in the metro routes. The net result was that with more seats on offer and dynamic online pricing system, yield per seat nosedived. Points out SpiceJet spokesperson: “The pricing environment continued to be weak, resulting in a decline in the average passenger yields in the September quarter by 5 per cent to Rs 3,317.” He says that with increased capacities getting inducted, load factor during the quarter was also down to 67 per cent from 74 per cent during the same period last year. With the creation of large capacity, airlines are finding it difficult to reach a breakeven load factor which itself has moved up because of higher fuel cost.

Too crowded

It is also true that the herd mentality of Indian business has made many to join the fashionable high flying club without much planning. As everyone thought that by driving volume one can make money, they kept on adding new planes. Though all airlines are flying more flights with the low cost carriers (LCCs) configuration to cut costs, it did not help much as the fixed costs for fuel, interest payments, depreciation and maintenance and so on, constitute 90 per cent of the total cost.

More from Business Line: The rise and fall of a castle in the air.  Glamour.  Huh.

Yella OK, Airline Yaake?

Why did he have to start an airline?  

As a consequence of Thursday’s flight cancellations, including 40 from Bangalore, hundreds of passengers were left in the lurch. There was chaos in several airports all over the country as Kingfisher passengers were told of their flights’ cancellation on reaching the airport. With their fares not refunded, the passengers had to book tickets with other airlines at exhorbitant rates to reach their destinations. 

He had to take out Deccan too.  All for this?

There were also reports that the airline, which has been struggling to stay afloat for long, had defaulted in payments to international aircraft lessors and some of them have sought to impound the planes. However, the airline has denied such a move. 

Kingfisher has suffered a loss of Rs 1,027 crore in 2010-11 and has a debt of around Rs 7,050 crore. 

His pilots are having fun. Those that left at least.  Training pilots with a planeload of people:

On September 18, a KFA flight from Delhi made a rough landing in Bangalore giving a jolt to the passengers late evening.  

And its (Airbus 8321) Captain, Salaluddin had announced: “Sorry for the harsh landing ladies and gentlemen, I was training my under-officer (Gaurav), he will get the hang of it soon.”

I hope for the sake of the passengers that he does.