A former associate of UB Group chairman, Mr Vijay Mallya, once said that the liquor baron only knows to buy and not to sell. He may be exaggerating a little, but certainly this time around, he is surely scouting for an ally to bail him out of a business venture which has gone horribly wrong.
While the media has diligently reported on possible investors in Kingfisher Airlines, neither the company nor its promoter have tried to clarify the real picture. The only fallout of these reports has been some changes in the stock prices.
In May last year, the airline's stocks were at Rs 41.30; now they are at Rs 19.35, interspersed with occasional highs triggered by news of proposed FDI in the sector, or a Reliance or a Sahara evincing interest in the venture. The gradual slide in the company's fortunes has impacted the common investor heavily. For example, if someone had invested Rs 1,000 to buy shares in the airline a year ago, his investment would be worth Rs 445.57 today.
MERGER
It needs to be pointed out here that the UB Group which owns Kingfisher Airlines bought Deccan Aviation, the promoter of low-cost Air Deccan, at Rs 155 per share. Just ahead of the merger between Deccan and Kingfisher, the former's stock hit a high of Rs 330 per share which translated into a market cap of ($1.1 billion) Rs 5,500 crore at the current exchange rate. Today, the market cap of the merged entity stands at a little more than Rs 1,000 crore, with huge debts and liabilities as additional burden.
While it is easy to blame Mr Mallya for flying his airline into such turbulence, ask any businessman and he will tell you that an enterprise would be better off taking risks than not taking any. Today, neither Air Deccan which was later renamed Kingfisher Red, nor its business model exists, something which critics have never got tired of pointing out as the root of the problem with Kingfisher Airlines.
A lot has been said and written on the reasons behind the rapidly-dwindling fortunes of Kingfisher Airlines. But what is of immediate importance is how Mr Mallya plans to come out of such a tight situation without hurting his group companies. Will stake sale in the airline be good enough to turn it around?
The popular view is that it is possible, and hence the frequent speculation on who would be the white knight to bail out the airline.
Another set of critics point out that even if the Government allows 49 per cent FDI in the airline sector, will someone actually put precious funds into Kingfisher Airlines which has a Rs 7,000-odd crore debt and about Rs 4,000-crore liabilities (which includes tax dues etc)? Therefore, picking up a 49 per cent stake in the airline comes with the baggage of half the liabilities and debt.
FOREIGN AIRLINES
Hence, a foreign airline or a company intent on entering the sector can always look at airlines besides Kingfisher which have similar valuations, and come with cleaner balance sheets. But it is anyone's guess how many barring Kingfisher Airlines are really keen on taking on board a foreign airline.
Analysts monitoring the company claim with a certain amount of certainty that Mr Mallya is ready to exit the airline. But the issue is how he can manage to do that. One option is to sell part of his stake in one of the group companies like United Breweries or United Spirits to raise approximately Rs 1,500 crore to Rs 2,000 crore and pump this amount into the airline.
This would help him to convince the bank consortium to put in a similar amount, which could lead to higher exposure in the airline than what it already has, which at present is approximately 23.4 per cent.
Here's where the twist comes: if instead of Mr Mallya shedding his stake, banks shed theirs to a foreign airline at a certain premium, they might end up with lesser bruises than they have already inflicted upon themselves.
Through another round of restructuring, the airline will have lesser debt to contend with, making it slightly attractive for potential partners. The foreign airline buying into Kingfisher could then infuse more funds by way of loans into the airline for it to resume normal operations. Once the airline turns around, the loan can be repaid to the foreign partner.
RAISING THE STAKES
In case Mr Mallya wants to exit the airline, he can start reducing his stake to a level where he becomes a marginal stakeholder while slowly increasing his stake to the level he held earlier in one of the group companies in which he had sold part of his stake.
But the bigger issue is if Kingfisher Airlines can stand on its own without the help of Brand Mallya. It is something lenders as well as the new partners might want to ponder.
Assuming Mr Mallya wants to let the airline die a natural death, there is every possibility that it would drag a large part of the group along with it. Therefore, one can rule out this option immediately.
Surely, there are enough brains in the airline as well as in the group who are busy working out permutations and combinations to get the company out of the mess. So, we might just see some out-of-the-box kind of solution for the current crisis.
Mr Mallya has tried hard to keep the airline floating by even pledging the shares of the UB Holdings, which might, as an afterthought, look foolhardy (guarantees given by UB Holdings are as much as Rs 9,000 crore) but one certainly cannot find fault with his commitment towards the venture.
If you can find fault with him it would for the reasons that he completely misread the mind of a typical Indian consumer, who, at the core is a bargain hunter, someone who will try to strike a deal even when he wants to buy a Mercedes Benz.
History might be less critical of Mr Mallya as someone who was ahead of his time by trying to give passengers a great experience while flying, something which they were starved of.
But currently, Mr Mallya is running out of options as the days pass by. The next few weeks will tell us where the airline is headed.