A few years ago there was a run on a bank…surely nobody wants me to name the bank, correct?

Well I will not.

RBI went out of its way to rescue it. When I was talking to somebody in the management of that bank, he said ‘It is actually RBI’s problem’ – we have no known promoter, so it hardly matters…..

Now we are talking of a ‘Kingfisher’ bail out.

The way Indian promoters work – and airlines promoters work, the promoter would have got his money back long ago. A public blog is hardly the place to discuss how. Now what is left is the money of the small shareholder, the banks who have lent money, statutory dues, lease rent payable to the lessors….

So the civil aviation ministry is helping the finance ministry to reduce losses, that is all.

Principally if there are 4 airlines – and in terms of profitability they are ranked A, B, C and D – the law says ONLY and ONLY if ‘D’ dies, can the other 3 be profitable. Simple law of the jungle. Our politicio-economist PM should not go on air and say ‘we will bail out KF’. Sounds laughable too – SBI funding AI and KF to undercut each other – and when the bleeding hurts, SBI gives a concession on interest and moratorium on loan repayment. L O L…

Let one airline go down MMS (Dr. ManMohan Singh)…no tears will be shed. If you rescue it, it is like penalising Indigo and SpiceJet – somewhat like farmer suicide…not fair on the efficient ones…


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  1. Amusing… What does the govt have to do with a pvt airline’s fate? Mallya seems to have got his cue from wall st. And shows what a few years of politics can do to people like MMS.

  2. Was wondering why there was nothing on this topic in the blog. Just these things make us love and respect Mr. Ratan, Mr. Rahul, Mr. Azim… etc for their integrity and ethics. Hats off to them.

  3. When trying to understand what’s wrong with airlines, it’s important to remember that the industry is:
    1. Highly capital-intensive – Needs consistent inflow of money for expansion.
    2. Heavily dependent on economic cycles – Every bad phase is the worst phase.
    3. Hamstrung by high oil costs – Can’t do without these.
    4. Selling a commodity – No one has reasons to ask for a higher price for an airline seat than competitors.
    5. A real bankruptcy risk – That’s what we are seeing now.

    This all adds up to create a pretty unattractive picture. And over the course of multiple economic cycles, these companies can’t earn more than their costs to operate.

    So don’t bail them out, and don’t touch their stocks with a 10-foot pole!

  4. Vishal,

    Airline is NOT capital intensive – nowhere near banking or insurance.
    Dependent on cycles – ONLY in developed economies. India is still growing.
    Oil – no argument
    British Airways used to be 3 times Air India – it is about quality of service.
    No bankruptcy risk unless you manage it badly

    Not easy to make money – untrue, promoters make money….

    agree, do not put money…but reasons are different…

  5. Well, Subra, here I quote Buffett, “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines…”

    Of course, I won’t compare airlines with banking and insurance, but on an absolute basis, they do require continuous capex and working capital…and that too in huge numbers. Or what would have led them to create such big debt burden on their books.

    As for the second point about cycles, well even Indian airlines are dependent on global cycles…remember what happened post the 2001 and 2008 slowdowns. A large part of domestic business travel was curtailed as companies resorted to cost cutting.

    As for bankruptcy, however hard you try to avoid it, it is an eventuality (for a large number of companies) given the industry’s extremely poor business dynamics.

    As far as British Airways is concerned, its no. of passengers, sales, and profits have remained stagnant (losses for past 2 years) for the past 14 years. Subsequently, the stock has been a massive underperformer!

    Finally, when it comes to promoters making money, Mr. Mallya might have a better answer! 🙂

    And it’s anyways not about promoters making money, but how much did the investors made.

    In all, I believe, airline is a terrible horse, and even a nice jockey cannot lead it to the finish line.

    If not for these reasons, what would warrant staying away from airline stocks?

  6. Here is the more detailed version of Buffett:

    “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of Wright Brothers…. Despite putting in billions and billions and billions of dollars, the net return to owners from being in the entire airline industry, if you owned it all, and if you put up all this money, is less than zero.”

    Regarding British Airways, I read somewhere that annualized returns a shareholder would have got for 25 years is only 4%, despite BA being the dominant player in Europe.

  7. I doubt the claim that promoters have already recovered their investment. This family has other businesses too and
    they did not go bankrupt. Let’s accept the fact that airline sector in India is suffering on many accounts. The balance sheet of all the airlines telling the same story. It is difficult for anyone to start airline business because it is capital intensive. What’s wrong if government bails out this airline company to protect jobs, business and taxes. It is already doing for AI/IA. Government is spending so much of its revenues on subsidies which are not helping economy for either for jobs or taxes. The troubled times could hit any sector and medicine at small dosage in the beginning could revive the business at much faster rate. Even for IT sector, the waiver of tax was extended when it was last expired. If collapse is imminent we may not see for long term other airlines operating in India.

  8. i remember before 2yrs or so, some equity expert compared loss making aviation(jet airways) to earlier days’ loss making mobile (bharti airtel).now both sectors have hard time.

  9. we should bail out for atleast this reasons
    who will fund kingfisher caledar poster -King of good times LOL -kings of bail out 🙂

  10. Airlines is a Business-to-Business money making business, not for the shareholder. Boeing and Airbus make money. Insurance companies insuring them (owned by Buffet) make money, employees make money, – shareholders suffer.

    True for life insurance too. It is subsidized by the parent company and you cannot see the subsidy. That is all.

    Hate to be a shareholder in airlines, but have made money in the past – Jet and Spicejet – luck perhaps, not a long term holder for sure.

  11. What Subra said is right; bailing out KFA is like an insult to the efficient ones like SpiceJet and Indigo. Till the plan to buy more bombardier jets SpiceJet was a debt free company; the only one to declare profits till the last quarter. KFA has not seen even a rupee of profit since it was operational. Let it fail. Let the inefficient ones go.

  12. rohit,
    i dont think the <40rs/day guy pays taxes; he wont have sufficient income to declare income tax. It is the hardworking middle class whose tax money is being taken away. That includes me and you.

  13. @geodesic
    i think it is not simply question of who is paying tax, but rather who are creating the national wealth as such. and may be the efforts of all <40 rs/day salary guy would be more than me and you and promoters of KS!

  14. Dr Mohammed Ali Khan

    More than Kingfisher, there is one airlines that should be closed down – Air India.. It is making colossal losses, very badly run and fully corrupt. But, because it is a ” Public sector ” ” Enterprise! ” it is being bailed-out by tax-payer money EVERYDAY. Kingfisher is small fish compared to Air India.

  15. Disagree on Air India. Demerge, get the politicians and bureaucrats out and legislate it will only be run by employees. It can still be turned around. It may cause most other airlines especially Jet to go bankrupt if you are willing to take that. Not sure our friends Pawar and Patel can do that.

    Insurers DO NOT make money on aviation. Why they still write this class of business is unknown. IN the 90s London underwriters stats showed that if for the next ten years no major loss were reported the industry would just about break even. Since the report there has been at least ONE major loss in aviation world wide. On certain aircrafts the fleet experience is so bad, it is uninsurable.

    As for MMS nothing has changed, he was a bureaucrat he remains a bureaucrat, only the illusion of having a spine has disappeared. Thats because his spine was called Narasimha Rao who is now dead.

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