Finally Vijay Mallya has
relinquished United Spirits (USL) as its chairman and will be getting $75
million as per the deal for quitting. State Bank of India has pounced at once to
secure the lender’s first right on the severance package and moved to the Debt
Recovery Tribunal (DRT) to seize his passport and arrest him. The only surprise
is that it had come too late from the leading lender. The ostentatious
businessman and his group owe around 7,800 crores to a consortium of 17 banks
led by the State Bank of India which has lent more than 1,600 crores. The fortune
of the erstwhile liquor baron has come to a mighty fall.
The Haughty Downfall
How could one forget the plush
and comfy Kingfisher airlines with dazzling air hostesses, sumptuous in-flight
meals and the TV on board? Sure did the airlines give a sophisticated experience
with a more urbane feel and one could just feel sorry for its downfall. Did one
wrong diversification bring down the empire of Mallya down?
No, there is more to than just
wrong diversification of the business. When the airlines started its operations
in the mid 2005, it was ranked 6th in the pantheon of Indian
Aviation Industry. And the brand stood out with luxury as its USP. If properly administered
Kingfisher Airlines would have easily evolved as the number one choice of flying
for the Indian consumers. But a lousy management style has brought the authorities
into terminating the license and ceasing its operations. Was there a desire by
Mr. Mallya to wipe off the competition in the quest for his glory?
Sadly the answer is yes. At a
time when Air Deccan (low cost carrier) was flying more passengers than
Kingfisher airlines, there were dramatic events which started unfolding for the
airline pioneered by Capt. C.R. Gopinath. Getting landing spaces, hangar
facilities in major airports and permits for profitable routes became a staged hindrance
for Air Deccan. And there was the writing on the wall for Air Deccan as it was
sold to Vijay Mallya led kingfisher airlines.
Jet Airways which was the number
one airlines at that time, got into a bidding war with Mr. Mallya over buying
of a heavily loss making and debt ridden airline, Air Sahara. When Subrata Roy the
owner of Air Sahara the then fourth largest operator wanted a sell-out, Mr.
Mallya participated in what is known as an inflated auction strategy to push the
price of the deal higher. Subsequently Mr. Mallya pulled out of the bidding and
Jet Airways fell for it and ended up buying Air Sahara for 1,450 crores which was
unanimously considered as too much.
Having won half the battle, Mr. Mallya
had to trap the two state carriers. And the unimaginable merger of Indian
Airlines happened with Air India. It is said that in 2007 Indian Airlines had
achieved profitability of over 90% of its routes and it had only 10% in the red
zone which was well on its way to profitability as well. Unfortunately the unification
of Indian Airlines with Air India happened despite vehement opposition from the
management of both the airlines. And as you guessed, the inevitable happened as
what started as a loss of 180 crores ran into a mountain of debt amounting to
40,000 crores. And now it was a fairy
tale start for Kingfisher as even its main competitor was taken care of.
Regardless of Mr. Mallya’s
strategy to drive out all the players in the ground, Kingfisher Airlines never
made any profit from the day of its inception. Ofcourse, as one might guess,
the whole master plan was orchestrated and supported by a faithful ally of Mr.
Mallya, who was sitting on top of the pyramid in the aviation ministry. Perhaps
Mr. Mallya should have realized that when his accomplice is moved out of the
office, he would be in trouble. And come 2012 Mr. Mallya was in deep waters as
expected over payments to vendors, employees were delayed, and the group
started bleeding money. Mr. Mallya’s lobby to avail investment from foreign airlines
went in vain. And Mr. Gopinath founder of Air Deccan believed there was a conspiracy
to kill Kingfisher Airlines. Well, it wasn’t simply said, “what goes around
comes around.”
Never ending good times
Despite business fiascos, the king
of good times Mr. Mallya’s propensity to spend has not blunted as he celebrated
his 60th birthday party roping big names from Enrique Iglesias to
Sonu Nigam to sing ‘Happy Birthday’. He drew severe flak for his lavish lifestyle
even while owing the banks a lot of money. The RBI governor Mr. Rahuram Rajan
lashed out at Mr. Mallya for flaunting his birthday parties. Even after the
ignominy of being labeled as a willful defaulter by SBI, an individual without
doubt has taken 17 banks for a ride publicly, challenging them by throwing extravagant
parties and delaying repayments for almost half a decade.
The Chickens have come home to
roost
The SBI chief Mrs. Bhattacharya’s
move to arrest Mr. Mallya is commendable. It is sure to send a signal to those
crony businessmen who had defrauded banks by not paying thousands of crores of
money, to fall in line. While arresting Mr. Mallya is imperative to set an
example, especially given the current plight of Indian Banks as they have neck
deep bad debts of 4,00,000 crores, the due diligence upon which the banks have
granted him loans has to be investigated. Kingfisher Airlines never in its
history of seven years made even a quarterly profit. It clearly showcases the
banks inefficiency in monitoring the end use of crores of money, which was
loaned to the airlines. After all, why should the poor tax payers money be used to bail out the flaunty businessmen and their businesses? Taking down
Mr. Vijay Mallya is just the beginning of many more to come.
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