“Rs 780 cr in one year, yet you doubt my com­mit­ment”

India Today - - THE BIG STORY -

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.

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