Analysis: Kingfisher's nosedive poses dilemma for India

Sat Feb 25, 2012 9:19pm EST
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By Anurag Kotoky and Sanjeev Choudhary

NEW DELHI (Reuters) - As Kingfisher Airlines (KING.NS: Quote) careens toward collapse, the Indian government finds itself between a rock and a hard place.

The government, already weakened by a string of corruption scandals over the past year, will face further political heat if it tries to rescue a money-losing private carrier - especially one owned by a flamboyant liquor baron.

If it lets Vijay Mallya's airline fail, however, the government will hurt state-run banks, which own about a fifth of Kingfisher's shares and three-quarters of its $1.3 billion debt.

Kingfisher is struggling with fewer flights and pilots, staff demoralised by unpaid salaries, and outstanding dues to aircraft lessors, oil companies, airports and tax authorities.

It needs at least $400 million quickly to keep flying, figures Centre for Asia Pacific Aviation (CAPA), a consultancy. Mallya's plans to raise funds through a share sale have been stalled and he has been lobbying the government to get state-run banks to lend more.

The fast clip at which the government has moved to change regulations in the past two months - airlines can now directly import fuel, lowering their costs, and private carriers can fly overseas more - has lifted expectations that Mallya may eventually win the help he needs from the government.

"India: Kingfisher's national carrier," one Tweeter quipped last week.

A government bailout for a private carrier would not go down well with the public in India, where airlines are still not the common man's preferred mode of travel. Conscious of that, the government insists it is not looking to bail Kingfisher out.   Continued...

A lone Kingfisher Airlines customer waits in a check-in queue at Mumbai's domestic airport February 21, 2012. India's debt-crippled Kingfisher Airlines Ltd stood on the brink of collapse on Tuesday after nearly a week of flight cancellations and the resignation of dozens of its pilots.   REUTERS/Vivek Prakash