February 27, 2012 To Dr. Manmohan Singh Prime Minister of India
Dear Dr Singh,
Subject: - Concerned citizens object to the bailout of Kingfisher Airlines at public expense
Dear Sir Statements from your ministers for Civil Aviation and Finance seem to suggest that the government of India is on the verge of succumbing to the scare tactics of Mr Vijay Mallya, owner of Kingfisher Airlines. The government seems set to ‗persuade‘ banks to provide him yet another bailout to fund a company that has so far racked up almost Rs7000 crore in losses, entirely funded by loans. Since most of the money has been lent by nationalized and public sector banks, which are repeatedly capitalised by the government, it would ultimately mean that this profligate private enterprise will be bailed out with public funds. We, a group of concerned citizens, are writing to express our strong objection to any further bailout of the flamboyant billionaire, which will only allow him to continue to mismanage the airline. He wish to submit that: 1. Mismanagement: Mr Vijay Mallya, a Member of Parliament, famous for his extraordinarily expensive lifestyle, has driven this airline to bankruptcy by sheer mismanagement and bad financial planning. This is evident from the profits earned by other airlines (Indigo and Spice Jet), which did not make expensive acquisitions (Air Deccan) for foolhardy growth. This expansion and growth has come only because of the benevolence of Indian banks. 2. Gross Irregularities: Meanwhile, the high-spending Kingfisher Airlines (KAIR) has not been transferring provident fund payments of employees as well as taxes deducted at source (TDS) forcing the tax department to freeze its accounts. Staff salaries have also been delayed, as are payments to suppliers. The company also owes several hundred crore rupees to public sector oil companies. According to the auditors of Kingfisher, undisputed amounts payable include TDS of Rs422.98 crore, service tax of Rs10.48 crore, and fringe benefit tax of
Rs4.51 crore were outstanding for a period of more than six months from the date they became payable (information from Kingfisher‘s accounts posted on its website). 3. At Whose Cost? A September 2011 report by Veritas, an independent Canadian research firm clearly anticipated and documented the fate of Kingfisher Airlines in a hard-hitting report. Titled, ‗A Pie in the Sky‘ it also warns that UB Holdings, the parent company of Kingfisher Airlines ―is teetering on the verge of bankruptcy‖. Veritas writes that KAIR‘s book equity has been wiped out although audited financials pretend otherwise. ―The airline is burning cash at a rapid rate (Rs300 crore in the first quarter of 2011-12), is in a business that requires capital perpetually, has no pricing power given six carriers fighting over the major hubs in India, is dependent on the vagaries of the price of oil and the largesse of state-run financial institutions in India, and its parent UB has run out of financial room to accommodate the needs of this capital-starved child. Moreover, in spite of the so-called debt recast, we believe that once the noncancelable operating and financing lease commitments of KAIR are included, KAIR‘s enterprise value is less than its contractually required cash obligations, implying negative residual equity value for KAIR.‖ The report also categorically says, ―Clearly, KAIR is funding itself at the expense of its employees and the Indian exchequer‖. 4. Indian Banks Complicit: We are surprised that Indian banks have done nothing since September 2011, when this report was available to all large institutional investors. Their silence amounts to dereliction of duty, since KAIR‘s inability to pay endangers their own profits. As Veritas says, ―we believe that unless the banking institutions have provisioned judiciously for the debt provided to KAIR—approximately Rs4567 crore ($ 986 million) in loans to Kingfisher in addition to standby letters of credit, etc—it renders the disclosed capital position of the banks unreliable.‖ It is hard for us citizens to believe that the government could do nothing to protect taxpayers‘ funds or prevent further haemorrhaging of KAIR over the past five months after this report. Even earlier, banks have bailed out the airline by scandalously converting its debt to equity at higher than the ruling market price of the day. Such largesse is unheard off and has never been extended to smaller and more deserving entities. Indian banks want Mr Mallya to provide personal guarantees in excess of Rs1500 crore. We the citizens of India believe that the time for personal ‗guarantees‘ is long over. In fact, we believe that banks had ‗personal guarantees‘ from Mr Mallya in the past that were deliberately not enforced and may have dissolved after the conversion of loans to equity. Why should bank chairmen not be held accountable for failing to rein in Mr Mallya through coercive action of the kind they initiate against smaller borrowers?
5. Collateral Destruction of a Public Asset - Air India: Kingfisher‘s profligacy is not only at the cost of India‘s nationalized banks but also the national carrier – Air India. Even a foreign observer like Veritas calls the civil aviation ministry‘s attitude to Air India ―duplicitous‖ and observes, ―it could be on the diktat of the regulatory authorities involving various ministries of the Government of India that an unviable airline, KAIR, which is competing against the incumbent state carrier and siphoning away its passengers on both the domestic and international routes, is being supported via taxpayer-funded financial institutions‖. 6. Bailout is Unjust, Unfair: In contrast to the constant injection of public money into Kingfisher, the middle class (which is forced to pay all direct taxes, indirect taxes and the bribes demanded for everything from passports, to driving licenses, death certificates, property registration etc) is struggling with spiraling cost of living and poor public provision of healthcare and education. The situation is far more tragic when it comes to our hard working and badly indebted farmers. Between 1995 and 2010, over 2.5 lakh farmers across the country committed suicide primarily because they could not bear the burden of debt they incurred to meet the growing cost of agriculture. They prefer death to dishonour and do not have the luxury of defaulting, like the super-rich Vijay Mallya does. Our plea: Sir, we urge you to ensure that taxpayers‘ money is not spent to bail out Vijay Mallya‘s Kingfisher Airlines. We suggest the following as a possible solution to prevent more public money being pumped into Kingfisher and end the increasing harassment to the flying public. a. Exercise State Powers: We strongly suggest that if the state of Indian aviation is a matter of concern then any concessions to KAIR must come only after a change in management and with strict conditions. The Indian Companies Act has several provisions under which the government can actively intervene to force companies to behave or to force a change in management. Instead of acting to protect our funds, Dr Veerappa Moily, the Minister for Corporate Affairs is talking about instituting patriotism awards for Indian companies. Does this reflect the current state of affairs in India? b. Force Mr Mallya to Pay Up: Even without Mr Mallya in management, there should be no bailout without forcing him to liquidate his own personal assets to pay for the excesses of his airline. Mr Mallya must be forced to bring in at least Rs4000 crore to KAIR. This is easily doable. Unless the government demonstrates
its willingness to initiate tough action, the people will be forced to explore other options to ensure justice and fair play. c. Quick Policy Change: It may be recalled that as part of a perverse policy followed by successive governments, the Indian private sector companies with no experience in the airline business were licensed to enter the business. Since the mid 1990s, this has led to the quick entry and exit of many players (some with questionable reputations) such as East West Airlines, ModiLuft, Damania Airways, Air Deccan, Air Sahara and Paramount etc. The incumbent airlines have been routinely flouting safety norms and the scandal of pilots with false flying credentials is already well known. Now that this policy has only created a sick industry and problems for Indian consumers, we need urgent corrective action as well as higher safety standards. We urge you to take personal interest in this issue and act swiftly on behalf the people of India. We would like to reiterate that we the citizens find it unconscionable for the government to even contemplate a bailout (including indirectly through the public sector banks) for Mr Vijay Mallya in the name of ensuring that the airline is up and running. We demand that Mr Mallya be forced to bring in funds, that there must be a change in management at Kingfisher Airlines and that aviation policy must be reexamined.
Yours sincerely
Aruna Roy
Nikhil Dey
Sucheta Dalal, Trustee, Moneylife Foundation Debashis Basu, Trustee, Moneylife Foundation Kapil Bajaj, Journalist, Delhi Biraj Patnaik Suman Sahai Jayati Ghosh Jagdeep Chokar Prashant Bhushan Deep Joshi Kiran Bhatty EAS Sarma
Praful Bidwai