Thought of Kingfisher bailout irks activists, bankers  

November 15, 2011

They hope sane counsel will prevail, at least this time

Moneylife Digital Team

As speculation continues about the fate of troubled Kingfisher Airlines, rumours are circulating that the government, probably, will bail out the company. However, many activists and citizens have criticised the possible move. Their view is seconded by bankers and bank unions, who earlier had a bad experience with the loss-making airlines. Their concerns have doubled now that Kingfisher has posted a loss of Rs469 crore for quarter ended September 2011.

Former secretary for power and finance, EAS Sarma has written to prime minister Manmohan Singh asking him not use taxpayers’ money to bailout Kingfisher Airlines. He says, “The financial crisis that the airline is facing is evidently a crisis that is created by its own mismanagement. There is no case whatsoever for the government to divert the tax payers’ money. After all, if the airline tries to put the blame on the high taxes imposed on aviation turbine fuel, has not the government taxed the ordinary citizen in numerous ways, including the increase in the price of motor spirit (petrol) and imposition of high level of taxation on day-to-day requirements of LPG, diesel and even kerosene?”

Bank employees are also up in the arms against the attempts for a possible bailout of Kingfisher. Calling any bailout of Kingfisher Airlines by banks or by the government as 'anti-national', CH Venkatachalam, general secretary, All-India Bank Employees Federation (AIBEA) said, "We have addressed a letter to the RBI Governor expressing our opposition to any further loan to the Airlines by any of the Banks."
 
"AIBEA has also advised all its nominee Workman Directors on the Boards of the Banks to oppose any further bailout or credit facility to Kingfisher Airlines. In fact the entire loan should be recalled by the Banks. We also demand a parliamentary probe into the purchase of the shares of Kingfisher by the Banks. If the Banks proceed with such proposals to bailout the airlines, AIBEA would launch protest programmes across the country," Mr Venkatachalam added.

The last time too, it is understood that banks bailed out Kingfisher at the specific intervention of the Reserve Bank of India (RBI). While all banks including State Bank of India (SBI), ICICI bank, IDBI Bank and Punjab National Bank which are part of the 13-bank consortium have exposure to KFA have suffered heavy losses, they have decided not to provide a bailout package. Banks have a total exposure of about Rs7,000 crore to Kingfisher Airlines.

Of this, over Rs1,300 crore had been converted into equity during the last fiscal as part of a debt restructuring exercise. Over Rs4,000 crore of the banks’ total exposure are in the form of term loans. These banks now hold a 23.4% stake in the ailing company, which has incurred over Rs7,000 crore in debt. Last time the conversion had happened at Rs64.4 per share, but right now, the shares are trading at an abysmal Rs21.35 (as on 14th November; having slightly improved from its all time low of Rs19.55 on 3 October, 2011), which makes debt-equity conversion unviable.

Bankers have made it clear that Kingfisher’s promoters will have to infuse Rs800 crore worth of fresh equity into the company if they are to consider a second restructuring of existing debt. It is a dilemma for banks: neither is further lending to loss-making Kingfisher viable, nor is it okay to let a company sink where they hold stake.

However, some bankers believe that history may repeat itself this time—RBI and the finance minister may again force them to salvage Kingfisher Airlines. They are, however, hopeful that saner counsel will prevail based on the strong public reaction against bailing out Kingfisher, especially the open opposition by eminent persons such as Dr Sarma and Rahul Bajaj, chairman of Bajaj Auto.

In a conference, Mr Bajaj reportedly said, “I am proud private sector man and I don’t see any logic of bailing out any private sector company either for sake of employees or customers... If Bajaj Auto gets into a mess, would you bail me out? If it’s a free market economy, those who die must die.”

Even SpiceJet, which posted net loss of Rs240.07 crore in Q2 September 2011, is against the idea of Kingfisher’s bailout. “It is the private sector. Why should there be any bailout for a private air carrier. I do not see any logic why taxpayers’ money should be used to bail out a private company,” SpiceJet chief Neil Mills said.