By Nantoo Banerjee
After Vijay Mallya of grounded Kingfisher Airlines, it is now the turn of Kalanidhi Maran of SpiceJet to take air-travelers, creditors, suppliers and the government for a ride. Ironically, there is a lot of similarity between the two southern business barons. Liquor baron Mallya was branded as ‘king of good times’ because of his lavish lifestyle. Media baron Maran has been, for years, India’s highest earning business executive. His remuneration package in 2013-14 was Rs.59.89 crore. Maran’s wife Kavery too got an equal remuneration, taking the combined annual pay package of the Marans to an astounding Rs.119.78 crore from his media enterprise, Sun TV, boasting some 33 regional channels.
Like Kingfisher, SpiceJet too is not caught into the debt-trapped air-pocket, all of a sudden. Maran’s airlines’ combined liability is said to be in excess of Rs.2,000 crore, though much lower than Kingfisher’s Rs.7,000-plus crore before it was grounded in 2012. Kingfisher collected a lot of money from prospective passengers by advance booking of ticket. SpiceJet was reportedly offering discounted passenger tickets, some six months in advance, to keep its cash box warm.
How serious is SpaceJet’s financial trouble? Why was the trouble allowed to accentuate when the company’s annual reports of the last three years projected a grim picture of its extravagant operation. Did the company carry out proper cost audit and maintain cost audit reports over the years? Did the management act on these reports? What did the financial auditors, including internal ones, do? Did they serve right warning to the SpiceJet managent and the stakeholders, bankers, suppliers, airport authorities, etc. about the true health of the company? Or, did Maran expect a miraculous Lok Sabha poll result returning the UPA and DMK back to power that could have probably gone to the advantage of his business empire, taking care of Spicejet’s financial woes? Maran brothers – Dayanidhi, a former union minister, and Kalanidhi – were allegedly involved in the massive UPA-era telecom scam. The two are the sons of DMK supremo M Karunadhi’s nephew, the Late Murasali Maran, who too was a union minister.
These questions are important as the government is already playing a ‘White Knight’ to save itself from a big embarrassment as series of recent flight cancellations by SpiceJet have sent the spot price of domestic air-tickets through the roof and the authorities were subjected to severe public criticism. A Delhi-Kolkata-Delhi economy class ticket turned out to be more expensive than Delhi-Frankfurt-Delhi ticket by Lufthansa. Domestic passengers were robbed by other airlines while foreign tourists to local destinations got stranded due to flight cancellations. Airports were in total chaos. The government was not expected to stay a mute spectator of the chaos and misery of lakhs of air-travelers.
Did SpiceJet engineer the situation with a great calculation? The cost of operations of airlines has substantially fallen as a result of continuing slide in the aviation turbine fuel (ATF) prices in the last few months driving up the profits of airlines operators. Under the circumstances, SpiceJet’s decision to make random cancellation of flights is somewhat puzzling. Strategically, it would appear that SpiceJet, India’s so-called budget airline, couldn’t have chosen a more opportune time to cancel so many daily flights. Air-travel in India peaks in December-January. The tourist tourist season starts September-end and runs through end-March. After almost a two-year lull, foreign tourists are landing in India in hordes like never before. With the economy picking up and the Christmas-New Year jubilation already begun following school-college holidays, a heavy domestic air-travel pressure is building up. Another large airline collapse at this juncture could mean a big embarrassment for the new government promising achche din (good times ahead) to citizens.
However, a financial bailout of the airline would do wrong to tackle the situation like this. A better option would be an immediate takeover of the airline and handing over its operation to a professional body, under the supervision of a non-executive board comprising some of the most successful bankers and business executives. A bail-out of the Marans would look rather unnatural as, going by the latest Forbes’ estimate, Kalanithi Maran’s net worth alone was $2.3 billion (Rs.15,000 crore). In any other country, such promoters would have faced criminal action from both the government and the public, sending those financial offenders to jail.
The Marans don’t appear to be short of funds. Even earlier this year, Kalanithi Maran and Kal Airways, the promoters, were reportedly planning to raise their stake in the airline 10 per cent to 68.42 per cent pumping in an additional Rs 312 crore by subscribing to a fresh equity issue in two tranches – allotting 81,680,629 shares in the first and 107,410,479 shares in the second. It planned a special issue of 189.1 million warrants, to be priced according to the Securities and Exchange Board of India’s formula for preferential issues. These warrants will get converted to equity shares in two tranches —-in April 2015 and April 2016.
Maran had acquired SpiceJet rather cheaply for Rs 750 crore in 2010 and invested an additional Rs 550 crore later, by way of equity. Only last year, SpiceJet had inducted seven Boeing 737NGs and redelivered one aircraft, taking its fleet size to 58. It made a route rationalization discontinuing 26 unprofitable routes and reducing capacity on 14 routes to increase its asset utilisation to produce more seat-km, depending on windows of opportunities. What did suddenly go wrong in the last few months, especially after the fall of UPA’s and DMK’s political fortunes?
The government-owned AAI has agreed to extend credit facility to the airline for 15 days till December 31. The airline, which has been buying ATF from state-owned oil companies on a cash-and-carry basis since around the time the NDA came to power, got a reprieve early this week from the oil companies as well as Airports Authority of India (AAI) after the Civil Aviation Ministry stepped-in, requesting them to offer emergency credit facility to avert the worst. Thanks to these measures ahead of the Christmas, SpiceJet claimed on December 19, it was able to operate 218 of the scheduled 230 departures. The company, eventually blamed flight disruptions due to the non-payment of dues to the oil firms earlier, and will soon return to normal operation and old schedule. The mid-winter aerial chaos was scary. Suddenly, all wanted to fly the old faithful, Air India. (IPA Service)