Fixing Kingfisher PDF Print E-mail
Saturday, 07 January 2012 02:55
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Of course it’s an NPA, but why isn’t Air India?

Now that Kingfisher Airlines has been declared an NPA by SBI, and other banks will probably follow since the debt-ridden airline hasn’t been paying most banks, the obvious question that arises is how long it will be able to fly. The day that SBI’s chief declared the NPA status was also the day the DGCA gave Kingfisher three days time to come up with a credible safety plan and show how it was going to be implemented—an earlier DGCA report said there were grounds for withdrawing the airline’s permit as a third of its fleet was grounded for want of spares and engines and that the airline was cannibalising parts, removing them from a grounded plane to use in ones that were still flying.

The more important, and less asked, question is how come Air India hasn’t been declared an NPA considering its debt profile is a lot worse and market share much lower—going by the Deloitte Consulting report on Air India’s turnaround (http://www.financialexpress.com/news/fe-editorial-ok-to-bail-out-psus/882126/), achieving the projections made are a tough call in even an airline with management freedom, let alone one where even a minor decision is made by the government. The reason why Air India can continue to service its loans, and not be declared an NPA, is that every time it has a cash crunch—and can’t pay salaries or loans—the government gives it a few thousand crores. AI, in turn, uses this non-stop back-stop to undercut other airlines to boot! It gets loans at lower rates of interest, not because it is a better bet, but because it has a sovereign guarantee. Worse, lucrative global routes are reserved for Air India—private airlines are denied these routes—but it still manages to make losses on most of them. Give some of these routes to private airlines and they’ll most certainly make profits – more so since you don’t have to pay 24-25% VAT duties on fuel for foreign flying (fuel makes up 40% of flying costs). It’s possible the Kingfishers will still make losses and need to be closed. But it’s unconscionable that private firms be held up to a standard that doesn’t apply to PSUs.



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