The country’s civil aviation policy is very liberal and particularly helpful if you are an unknown Indian immigrant worker or petty businessman based in Dubai or any such place wanting to become an airlines operator in India. No question is asked. Also, no question is asked if you are in poultry business, or a truck tyre maker, a small-time travel or ticketing agent, a chit fund operator, an ex-army man, a race horse owner and punter or a liquor trader seeking the government permission to try your luck in running airlines. If your luck runs out any time, just close the shop, ground the aircraft and crew and run away from the runway. Again, no question is asked. Let your creditors sulk and the media keep making noises until it gets tired, the story gets dated and a new scandal surfaces.

The civil aviation policy is very clear. Only the inexperienced in the trade will be encouraged and granted license to operate airlines. No local entrepreneur having experience in the airlines business, wanting to tap the expertise of any high profile global operator as a partner in order to maximize the efficiency and minimize the risk factor, will be allowed to get into this highly tricky trade. The civil aviation ministry, in it wisdom, probably wants only business gamblers and fortune hunters to be in this financially high-risk trade. Ever otherwise, civil aviation is a high risk business, the world over, even for the most experienced. The Pan Am, Swiss Air and JAL – all giant national flag carriers of the last century – are now in the oblivion.. A modern airline operator should have the guts of a mafia boss, manipulative and highly reckless with others’ funds. Additionally, he should be a big show-off, flaunting wealth and woman, for a brand image. Virgin’s Branson and Kingfisher’s Mallya are constantly under media lens. After all, the airlines are not generally meant to cater for the poor.

Once the entry level conditions are met and the government gives the nod to operate the business, the rest are simple. You can charter-hire aircraft on wet or dry lease with or without pilots and key crew members. There are many companies in the world, including aircraft manufacturers, which are in the aircraft lease rental business. If necessary, the promoter can also hire airport ground handling facilities from another existing operator with surplus capacity. Pay the monthly rentals from the sales income. Travel agents and travel.coms are there to boost your ticket sales directly or on-line. Traffic is assured unless tickets are too high priced. Run the business for a few months or a year. Tap PE fund or venture capital if necessary to quickly get over with any finance constraints. Then get armed with ‘positive reports’ from merchant bankers, analysts and media certifying ‘a great business future’ that lies ahead of your ‘highly successful’ airline, all aimed at an IPO or public issue of equity at a high premium. The public company status and stock exchange listing is a must to reduce your personal liability only to the extent of your shareholding.

Next, withdraw whatever money you might have initially invested to float the airline and, then, slowly raise your fleet size and debt levels to banks, airport authorities and oil companies which supplies aviation turbine fuel (ATF). You may have to get the books of accounts fudged, liabilities under-reported and assets over- valued. Avoid mortgaging your personal or other business assets to fund the airline operation. If the business bombs, the public company status helps you limit your liability only to the extent of your holding leaving other shareholders, creditors and employees to bear the maximum burnt. Aircraft leasing companies are not generally affected as under the lease contract they take back the flying machines in the event of payment default.
Sorry, it is not meant to be a reading for the light hearted. Consider the basic backgrounds of the promoters of passenger airlines who were enticed to the trade by the government’s prejudicial post-reform ‘open sky’ policy. Almost all of them fit into the above description. Take, for instance, Dubai-based Keralite Mohammed Wahid of East-West Airlines. The meteoric rise and fall of India’s first major private airline and the cause of the assassination of Wahid under mysterious circumstances after the airline fell into bad times still remain a puzzle. Poultry-owner Parvez Damania’s misadventure with Damania Airlines is all too well known. Despite Mody Rubber’s B K Mody’s misleading name of his airline, ‘Modiluft’, giving a wrong impression of its association with the German national carrier, Lufthansa, the airline did not take long to get grounded.

Air Sahara was floated by a former Lucknow-based Peerless agent and chit fund operator, Subrato Roy. The latter was clever to get out of the stressful operation before it was too late by selling the business to a rival, Jet Airways. Incidentally, Jet Airways-promoter Naresh Goyal was only a Delhi-based ticketing agent of Gulf Air before he disappeared to the Gulf in the mid-1980s only to reappear to promote Jet Airways, the country’s largest airline today, with the help of Kuwait Airways and Gulf Air. Jet too seems to have fallen into bad times. Ex-Indian Army Captain G R Gopinath of Air Deccan was the only smart operator to leave the business with grace. He sold his low-cost carrier to Vijay Mallya’s now-troubled heavy-winged Kingfisher in time for a hefty price. Air Deccan’s cheap-fare-full-load run from the Bangalore hub became almost a business nightmare for the top-of-the-heap Kingfisher, also Bangalore based.

High-flier Mallya’s entry into the airlines business matched with his flamboyance as a high stake player on the race track – be it at a derby horse race or Formula One. But, he too seems to have lost steam, but not before his airline had inflicted a hefty Rs 7,000 crore ($1.2 billion) hole in the pockets of his creditors, mainly the banks, oil companies and airport authorities. Interestingly, all key lenders to Kingfisher Airlines, now an international operator, are Indian banks and public sector Indian oil firms. There are no foreign entities worth a mention. Reports say that as on September 30, 2011, the Kingfisher promoters have pledged 90.17 per cent of their holdings in the airline. However, these shares are currently worth only Rs. 500 crore as the share prices of the UB group companies came crashing down on Kingfisher woes. Practically, the airline is worth nothing, today.

Kingfisher’s financial woes are not new. A consortium of as many as 13 banks, including SBI, ICICI, IDBI, Bank of India, Uco and Punjab National (PNB), which lent huge sums in the last five years, was earlier ‘coerced’ into converting a portion (Rs. 1,400 crore) of the total advance into equity at a high premium to acquire 23.21 per cent stake in Kingfisher. It was an extremely poor investment decision on the part of the bank consortium to convert debt into over-priced equity shares. The airline now wants these banks to again participate in a rights issue to partially bail the company out of the financial mess. Banks are unwilling. But, they may do so if only asked by the UPA government. A flying Kingfisher could put these banks at a greater financial risk than if the airline stays partially or fully grounded.

In normal circumstances, Kingfisher should face the same fate as East-West, Damania and Modiluft if it can’t handle the present debt burden. Like Parvez Damania, B K Modi and Subrato Roy, G R Gopinath, Mallya will be hardly troubled by the closure or the sale of the airline. His liquor business continues to be quite profitable. The group has lately spread its business wings to lucrative real estate promotion and adventure sports, Formula One. But, the grounded airline could be a nightmare for Kingfisher’s other shareholders, banks, sundry creditors, employees and low-budget air-travelers. Even a partial Kingfisher shut-down has pushed up domestic airfares by 20 to 30 per cent. Yet, it will be most unfortunate if the government intervenes to rescue the airline at the cost of tax-payers and bank depositors. Let the market find its own levels as the prime minister had reportedly said in connection with the latest petrol price hike by oil companies. This should apply to Kingfisher or any other business concern.

It is high time that the ailing Kingfisher serves a wake-up call to the government, which was hell bent to prevent a Tata airline in collaborative assistance of experienced Singapore Airlines from ever taking off into the Indian sky, to rethink on its moribund civil aviation policy. Also, maybe, it is time that the government gets fully exposed on its faulty civil aviation policy, which led to the sickness and mindless merger of the country’s oldest and most reliable public sector air-carriers – the erstwhile Indian Airlines and Air-India. If the grapevines are to be trusted, the merger of the two state-owned airlines, IA and AI, was ordered ostensibly to benefit certain private operators, including Kingfisher and Jet. Expectedly, the merged entity, Air India, has already hit the air pocket being deep into the red. The Kingfisher’s fall is real bad news for the entire civil aviation sector, particularly for the growing number of air travelers. Some less well-to-do Indians may now have to make do with other less-fast and less comfortable modes of travel until, may be, another horse trader gets ready to try his luck in this messy aviation business. (IPA Service)