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Kingfisher Airlines of India promised passengers the royal treatment — flight attendants so comely they were called “flying models,” full meals even on short flights and curbside valets to carry their bags.
When passenger numbers were rising, Kingfisher ordered more planes, although it had never turned a profit. It lost $219 million in the last nine months of 2008.
But how the mighty have fallen.
Short of cash and unable to pay its bills, the company has had to take on debt from India’s government-owned banks, pledge assets in exchange for loan guarantees, postpone delivery of new planes and search for a foreign investor.
Most symbolic, perhaps, instead of starting nonstop flights from India to California — as envisioned by the company’s flamboyant founder, Vijay Mallya — the airline last added a route from Calcutta to Dhaka, the capital city of Bangladesh.
Airlines around the world are suffering as businesses and individuals cut back on travel, but in India, by some measures, they are suffering more. And analysts say that in the months to come, Kingfisher, one of India’s top domestic carriers and one of the country’s most recognized brands, may be in for more pain than any other airline here.
Kingfisher’s troubles present a cautionary tale for investors and suppliers eager to do business in one of the few major economies still experiencing significant growth. Even as incomes and consumption continue to rise in India, success is not guaranteed — nor is a smooth ride.
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Of the $9 billion that the International Air Transport Association estimates the global airline industry will lose in 2009, nearly a quarter will be lost by Indian airlines, which fly just 2 percent of the world’s passengers.
For India’s private airlines, “the next six to nine months are about survival,” said Kapil Arora, a partner with Ernst & Young’s aviation practice. To make it, they will have to cut costs relentlessly in marketing, technology and payroll, he said.
Even that may not be enough. After resisting for years, the Indian government is considering letting foreign airlines take a 25 percent stake in Indian carriers. But the rest of the world’s airlines are short of cash as well. “It’s going to take active government involvement” to keep India’s airlines in business, Mr. Arora said.
For Mr. Mallya, whose empire also includes United Spirits and United Breweries, India’s largest liquor and beer producers (the name Kingfisher came from his beer brand), as well as a fertilizer company and an engineering firm, cutting costs could be difficult.
Known as the “King of Good Times,” Mr. Mallya pursues a lavish lifestyle that includes a collection of hundreds of sports cars and a villa on the French Riviera. He built Kingfisher as a “premium” airline and, when passenger numbers were growing, placed big orders for planes, including five of the A380 superjumbo jets from Airbus, even though Kingfisher had never turned a profit.
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In an e-mail interview, Mr. Mallya brushed off suggestions that the company was struggling for survival. It will turn a profit in the next fiscal year, he said, and a $500 million loan, recently arranged by the State Bank of India and sold to an alliance of banks, is sufficient to keep the company going this year.
He was also confident about finding a foreign investor willing to take a stake in the airline. “We are in discussion with private equity investors,” he said. “Certain airlines have shown keen interest as well, subject to the government policy allowing them to invest.”
Bankers and analysts say that Mr. Mallya’s target price for any deal is as high as eight times Kingfisher’s stock price, which has fallen more than 80 percent from its peak in late 2007. He would not confirm that figure, but said, “There is handsome value for the largest carrier with the widest network in a country with great potential such as India.”
Still, such a premium could be difficult to come by even in good times.
Kingfisher lost 10.5 billion rupees, or $219 million, in the nine months that ended in December, the most recent figures available. India’s other large private airline, Jet Airways, reported a slight profit for the first quarter of this year, in part because of one-time tax credits. Kingfisher still owes $100 million to oil companies for jet fuel it bought in 2008, Mr. Mallya said. Those payments will be made by November.
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