(I wrote this post in late 2011, and over the last half a decade, it has taken the most extraordinary turns. I have tried my best to update it as I could, but the developments have often happened faster than I could keep track of.)
Kingfisher Airlines has been in the news for its inability to service debt for quite some time, but the recent cancellation of flights across sectors has brought it into sharp focus. While people are up in arms over whether the government should play a role in helping it find funds, the Bankex has been taking a hammering. Giants like SBI, ICICI Bank, and IDBI Bank have more than fair exposure to the debts of Kingfisher Airlines. What is more worrisome than the temporary blimp on the sensex or the troubles of stranded passengers is the possibility that we are just beginning to see what the corporates and the financial institutions would have liked us not to see.
Kingfisher Airlines has been in the “red” for all of its existence. Yet, the service that it has rolled out has been exemplary in terms of quality, elegance and value for money. It has not scrimped on the frills, the advertising, or the sponsorships. It has maintained its price point, in many cases even lowered it to meet the competition. Yet it was losing money and going deeper into debt all of this time. When did we come to know about in a big way? When the oil companies and the ground handling services refused to entertain the debts any more. Are the oil companies and the ground handlers also in debt? Yes. So you have services being offered on credit to someone who himself is deeply in debt. Remind you of anything that you have heard of in the last five years?
(Update: Nov 12, 2011: Kingfisher Airlines has issued an official statement in response to media reports about the cancellation of flights, etc.)
(Update: October 4, 2012: After some movement towards raising funds, Kingfisher Airlines announces a partial lockout after labor woes and government warnings.)
(Update: October 4, 2012: Wife of KFA employee commits suicide leaving a note blaming their financial condition following non-payment of salaries for six months.)
(Update: March 12, 2016: Mallya leaves for UK after media, banks and courts object to his defaulting on 9000 crores of loans. The ED and the DRT issue notices for him to appear. Mallya tweets out his annoyance and arrogance.)
(Update: October 2016: Mallya blames Indian govt policies for failure of Kingfisher and claims he is a victim. His assets fail to reach reserve price when put up for auction by banks in India.)
Why is every one worried now?
They are worried because the entire economy, and not just the banks might actually be in big trouble here. This is just one instance of an airlines we are talking about. Already we see two allied corporations in the same soup, the oil companies and the ground handlers. Banks lend money to all sorts of businesses, small and big, and in today’s scenario, with all growth numbers looking grim, it is not difficult to imagine that most businesses are finding it difficult to service debt based on revenue streams alone. The only way out is to create more debt. So in many ways, we have a rerun of the sub-prime mess being played out here, with higher risks being built into the system with every successive attempt at capital infusion. With business going down, the logical but much protested downgrade of the Indian banking sector was perhaps just an indicator of things to come.
The only way out is through. Instead of allowing further funding, the financial institutions and the corporations who are part of this tragic tale of greed and unsustainable growth strategies need to take a reality check, redeem what they can and come up with a plan to pay their debt back, without creating further debt. Debt restructuring is just another word for allowing the systemic abuse to continue. If that means that revenues from other Kingfisher brands have to be channelized to save the airlines, so be it, since the other brands have benefited beyond measure from the brand extension value of the name Kingfisher. Greece, for example, has restructured its debts over and over in the last several months, and everyone knows that none of it is going to solve the problem, and that it is a ticking bomb. Any further attempts to “bail out” or “restructure” would only lead in delaying the natural and immutable law of cause and inevitable effect to act out.
What can we do about it now?
Through this all, what we as a society and as individuals need to look out for is our own contribution to a society that is built around the emotions of marketing. Free trade and liberalization was long believed to be the ultimate generator of human welfare, since we all blindly believed that a free market was going to bring with it the wisdom that would generate human value. But the law of cause and effect has made it easier for us to accept our error, since it is staring back at us everywhere we look. How can we as individuals make a difference to this uncontrollable spiralling of greed and tyranny? We can start by making a correction in our own value sets, by embracing a need-based consumption pattern, by adopting activities and pursuits that will create value for the people in our lives rather than for corporates, by letting go of the things that jeopardize our happiness and wholeness. Some easy ways to do this is by embracing a minimalistic and frugalistic approach to life, by making simplicity the core principle that guides all our actions, and by becoming beacons of joy and contentment that will not only strengthen ourselves but encourage others to adopt a more meaningful lifestyle.