“Rs 780 cr in one year, yet you doubt my commitment”
A harried and angry Vijay Mallya has three pet peeves at the moment—his rivals in the airline industry, the media which has been running him down and the Central and state governments which levy inordinately high taxes on aviation turbine fuel. Back in Mumbai from the Abu Dhabi F1 race, Mallya is in damage-control mode at his seafacing bungalow Niladri on the tony Napean Sea Road as he alternates between board meetings, conference calls with his main lessor International Lease Finance Corporation in Los Angeles, meetings with private equity investors and handling a hungry media. He admits mistakes have been made in the running of the airline and says he should have clarified that he has not sought a bailout from the Government or banks. In a conversation with SANDEEP BAMZAI, VJM, as he is called, says he is in talks with an Indian investor who is keen on
picking up a stake in the embattled airline. Excerpts.
Q. Clearly, there are mistakes that have been made in the running of the airline. Could you spell out some in the past 18 months?
A. When we decided to do a thorough financial evaluation of our routes, examining those that were profitable and those that were not, we identified certain routes that were totally unviable and decided to cancel flights post-haste. At the same time, we decided to reconfigure some of our aircraft. My sense is that this process should have been handled better in terms of communication with our customers and stakeholders. We have got a lot of flak for this, but we will be better off after this as it will improve operational efficiencies. Similarly, the shutting down of Kingfisher Red was a calibrated decision after evaluation of yields. The yields in regu-
lar economy are best and we have decided to focus on this segment. We have found that travellers are willing to pay for convenience and connectivity.
Q. Do you think there is an element of politics in aviation because the fraternity is a house divided?
A. Clearly a lot of the reportage is motivated and somebody’s hand is behind it, I mean it is evident even to a school child but at the end of the day business cannot run on what is reported and who is behind it, so I am glad I have the opportunity to clarify all the facts today. The industry as a whole is in a lot of trouble. Look at the condition of other players.
Q. Who do you think is instigating the media against you?
A. You know it is not good to speculate. I think… I know in my heart of hearts, let us keep it at that. I want to reiterate that I have not asked for a handout. I require working capital because aviation is a high-cost operation. I don’t need a haircut, I don’t want my
debt to be further restructured and, most important, I have not laid off anybody. I am not selling anything, nor am I hypothecating anything.
Q. Are you looking at a strategic investor or a private equity fund?
A. I am an honest, straight guy. If I am asked a direct question—have you received a direct offer from an Indian investor?—the honest answer is yes. I can’t go beyond that. Truth is that Government policy will also determine bringing in a strategic investor.
Q. Are you in favour of diluting equity if it helps improve the functioning of the airline?
A. I am committed to recapitalising the airline and if it means diluting equity in the process, so be it. I have absolutely no problem from that perspective. Over the years I have brought in Rs 3,593 crore of equity into the airline. In the last 12 months alone, I have committed Rs 780 crore with as much as Rs 150 crore coming within the last 30 days. Am I not committed to this operation then?
Q. The big question is how do you raise working capital for an airline that is losing Rs 5 crore a day?
A. Multiple factors will have to be taken into consideration. There is a regular appraisal of working capital needs by the banks and it’s a combination of the cost of inputs, collection cycles of sales avenues and payouts to various vendors.
Q. What is your single biggest concern right now?
A. It has to be the interest cost. When the master debt recast package was worked out, the interest rate was at 11 per cent. Now it is a steep 14 per
I am an honest, straight guy. If I am asked a direct question—have you received a direct offer from an Indian investor?—the honest answer is yes. I cannot go beyond that.”
cent. We have to open a letter of credit with the banks and dip into the maintenance reserves of almost Rs 1,000 crore lying with lessors. I also want to reiterate that I have no repayment obligations till 2013. Much has also been made of the dues to oil companies, believed to be Rs 1,000 crore of unsecured credit. Indian Oil Corporation and Bharat Petroleum Corporation have been paid, while Hindustan Petroleum Corporation has been given bank guarantees.
Q. Is aviation a mug’s game? Have you realised this over the past six years and doesn’t this disturb the larger UB ecosystem?
A. No. If you look at the situation 10 years ago, the situation was the same in the spirits business with Shaw Wallace and the Chhabria brothers along with Mcdowell competing with each other. There is no unity in the aviation community today which is very unfortunate because there are many industry issues that could be represented to the Government. Nevertheless the growth prospects in civil aviation are humungous: we are talking 270 million passengers by 2020. India is going to be the fourth largest domestic aviation market in the world.
Q. Shouldn’t the aviation industry approach the Government and make suggestions on what needs to be done? Why is there so much dissonance within the sector?
A. You need to ask my rivals in the aviation industry this question as well. We should be together like many industry associations. It is sad that we are not always in an alliance; nevertheless, I think the Government is committed to the civil aviation sector. The prospects are there, it is a question of tiding over the present crisis due to a prolonged crude spike. Rationalising of the tax structure on fuel is an immediate step to provide relief to the industry. On FDI, aviation is the only sector where such restrictions are enforced. So, with a bit of regulatory and policy change, I think aviation will benefit.