Kingfisher Air can still avoid closure

Kingfisher Airlines has gone from bad to worse,says Andy Mukherjee.

Kingfisher Airlines has gone from bad to worse. The latest setback is a three-day suspension of services at the Indian carrier. But the worst outcome – liquidation – would help no one.

The airline has long had too much debt,$1.4 billion at the last count,and sustained losses. Labour relations have been fraught,so the refusal by engineers to certify the airworthiness of the stripped-down fleet of 12 aircraft is not a total surprise. But it has pushed the carrier close to the brink. The civil aviation minister has said he could revoke the airline’s licence – it is supposed to operate at least five aircraft.

The worst can probably be avoided. The airline says there is no threat to the operating licence and Kingfisher has every intention to restart services in a few days. The company’s flamboyant founder Vijay Mallya is in talks to sell a stake in his liquor business,United Spirits,to Diageo Plc to find enough funds to keep Kingfisher in business. Creditors want more equity from Mallya or from an outside strategic investor.

Mallya,creditors and the government should all hope for the same outcome: Kingfisher’s survival. True,secured creditors – largely state-owned banks – could theoretically use a 2002 law to seize collateral. But the lenders would still face a loss; they converted some of their debt into equity at four times the current market price last year. A windup would be even worse for unsecured creditors,as well as for employees with unpaid wages.

A government bailout is out of the question. Finance Minister P. Chidambaram,under pressure to put the fiscal house in order,won’t write a cheque. But a Kingfisher failure would undercut the government’s liberalisation – foreign airlines can now own up to 49 percent of Indian carriers. One goal was to allow white knights from abroad to ride to the rescue of struggling domestic lines.

India is still a growth market and the global aviation business is expected to become more profitable next year. It should be possible to find an investor. Kingfisher’s demise now would be a pointless anti-climax.

CONTEXT NEWS

– Kingfisher Airlines said in a press statement on Oct. 1 that it is suspending all flights until Oct. 4,following a series of protracted and unabated incidents of violence,criminal intimidation,assault,wrongful restraint and other illegal acts including refraining from attending work,by a small section of recalcitrant employees. The company said it has more than sufficient number of staff to safely operate its current schedule of flights.

– Kingfisher to decide on lifting partial lockout Thursday

– Kingfisher flights grounded by staff unrest

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– Diageo revives talks for stake in India’s dominant spirits maker

(Andy Mukherjee is a Reuters Breakingviews columnist. The opinions expressed are his own)