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Corporate Oct 22, 2012

Kingfisher’s villains: DGCA, bankers, and Ajit Singh

By R Jagannathan

The suspension of Kingfisher Airlines' flying permit on Saturday should be seen as a complete failure of regulatory oversight, abject surrender by the lenders to political pressures, and poor supervision by Ajit Singh's civil aviation ministry. It is easy to blame Vijay Mallya for the airline's slide - he has been living in cloud-cuckoo-land for years now - but he received all-round support from everyone in the system while hammering the last nails in the airline's coffin.

That a drowning airline was allowed to continue to fly for more than a year after it was apparent to everyone but the blind that it had no money tells it own story.

The first reports - at least in the media, for the auditors and bankers should have known it much, much earlier - that Kingfisher was a goner came as early as September 2011, when auditor BK Ramadhyani & Co said that its net worth had been completely eroded, and it would need fresh funds to remain flying.

The Director General of Civil Aviation (DGCA) did nothing.

Soon after that, this fact became obvious to everyone when Kingfisher went into a flurry of flight cancellations, leading to not only passenger inconvenience, but a clear violation of DGCA rules and regulations.

The only option now is to let Kingfisher rest in peace. Licence suspension is not enough. It should be Kingfisher, RIP. AFP

But the DGCA still did nothing.

From early 2012, salaries of staff were not being paid. Vijay Mallya kept bluffing about bringing in funds, and the government kept raising the possibility of allowing foreign direct investment (FDI) in aviation, but neither materialised.

Around end-June, or early July, when Kingfisher's bankers had reached the end of their patience, there was talk of selling the airline's non-core assets - including Kingfisher House in Mumbai and a bungalow in Goa belonging to Mallya.

But nothing came of it.

Despite this stark signal, neither the bankers nor the DGCA acted. One bank, ICICI, did the most sensible thing, and bailed itself out by selling all it owned in Kingfisher - shares and debt. But the rest of the crowd sat on its hands.

In mid-July, the DGCA, prodded by bad news from every side, decided that it had to do something - and there were rumours that Kingfisher would be given a notice asking it why its licence should not be cancelled, especially since it had not paid its staff salaries for months.

But, surprise, surprise, it was the DGCA, EK Bharat Bhushan, who got the heave-ho. How did a dying airline manage to get the regulator's hands tied for so long is something we still don't have an answer to. And when the regulator moved, he got the boot.

A month later, the DGCA got yet another signal that Kingfisher was going under. As aircraft lessors sought to regain possession of their planes from a bankrupt Kingfisher, they actually paid the airline's dues to the Airports Authority of India - dues owed by the airline and not them - to repossess their aircraft. When a creditor pays a debtor's dues, it is the ultimate sign that the debtor is in really, really bad shape.

But the DGCA and the Civil Aviation Ministry were still reluctant to move.

In early October, it needed someone from within the airline - the engineering staff - to confirm to the world that the King of Good Times had no clothes (or money). As the engineering staff refused to okay aircraft for flying, suddenly it became clear to everyone and the dog at the lamppost that Mallya's airline wasn't going to be rescued at all. Eureka.

On 12 October, the GMR group, which runs Delhi and Hyderabad airports, got a non-bailable warrant issued against Vijay Mallya for the recovery of dues.

Now, finally, the DGCA - like cops in a Hindi movie, who come to the scene only after the hero has bashed up the villains - came into its own.

On Saturday, the DGCA suspended the Kingfisher flying licence.

So it is all over for Kingfisher?

The CEO of Kingfisher, Sanjay Aggarwal, has gone on record to claim that "this is not a cancellation, but a temporary suspension."

Wonder which world Aggarwal is living in.

But he is probably right to keep employee hopes up, but what excuse does the DGCA have for sitting on its butt for a year without acting?

Was he waiting for an accident in the airline to act? Can employees who have not been paid for months be trusted to fly passengers safely? How can an airline fly when the first reaction of most managements to financial adversity is to scrimp on safety? What was the DGCA's moral justification for inaction?

The bankers, too, did not cover themselves with glory. They know - knew long back - that the bulk of the Rs 7,000 crore loaned to Kingfisher will not come back. If this is not a complete lack of concern for shareholder and taxpayer interests - most of Kingfisher's loans are owed to public sector banks - what is?

Business Standard quotes a State Bank Managing Director, S Vishwanathan, as saying this: "We are concerned as we have no control on these developments. We were prepared for all these. The last thing we bankers want is a complete shut-down of the airline, as we want the airline to resume operations and repay our money."

Sorry, Mr Vishwanathan. If your bank thinks allowing Kingfisher to fly again is the answer, you are living in a fool's paradise.

Bankers have known since January this year that Kingfisher cannot service its loans. So what were they doing for the last 10 months?

The regulator, the bankers and the civil aviation ministry have badly let down Kingfisher's investors, not to speak of customers, employees and other stakeholders.

The only option now is to let Kingfisher rest in peace. Licence suspension is not enough. It should be Kingfisher, RIP.

by R Jagannathan

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