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I will share the post published by Harihar T S in LinkedIn.The 10 big Myths surrounding the Kingfisher Airlines Debacle...As the Kingfisher Airlines in general and the promoter, Vijay Mallya, in particular draw flak for the Kingfisher Airlines Debacle, there is a much larger story that seems to be getting missed out. Kingfisher Airlines was not the first business failure in India and it definitely will not be the last. Businesses are designed to evolve and get ejected through the process of creative destruction. That is what Josef Schumpeter had suggested nearly a 100 years ago and that still holds today. The tragedy of Kingfisher Airlines was not just about the mistakes of omissions and commissions of Vijay Mallya. It was the combination of a series of failures that brought Kingfisher Airlines to its knees. As the media takes potshots at Vijay Mallya's lifestyle and his defaults, a much bigger story is either not being told or it is being relegated to the background.Here are the 10 myths pertaining to the Kingfisher Airlines debacle:1. Vijay Mallya killed Kingfisher Airlines:I am talking as an entrepreneur here. Believe me, no entrepreneur will ever want to kill a brand that he or she worked so assiduously to create. As an entrepreneur, the one thing you are absolutely passionate about is the longevity of the brand that you created from scratch. Therefore, to believe that Vijay Mallya worked to destroy the Kingfisher brand is absolutely hogwash. Remember, he took over the business from his father in 1983 at the age of 28. From that point he built a liquor franchise that was the largest in the world. The Airline was, in a way, an extension of his liquor brand built over 35 years. No entrepreneur in his right frame of mind would permit his brand to be killed systematically, let alone encourage that to happen.2. Kingfisher was a flawed business model:In retrospect, that appears to be a simple conclusion. But that would tantamount to ignoring some basic facts. Kingfisher Airlines virtually defined the standards of private airlines in India. Be it quality in-flight service or in-flight entertainment or even when it came to maintenance of schedules; Kingfisher set and maintained standards that are adhered till date. Of course, the airline may be criticized for not cutting its coat according to its cloth, but that is not to take away from the way it managed to re-define the airline business in India.3. Employees got a raw deal from Kingfisher Airlines:It is easy to forget that at its peak Kingfisher Airlines was the most sought after employer in the airline industry. Employees who complain that they came here to build the Kingfisher Airline brand are talking through their hat. They joined Kingfisher Airlines as it offered the most attractive package and the best working conditions in the industry. One needs to remember that the troubles at the airlines started brewing around 2010 itself. More often than not, employees in most organizations think with their feet. Many did leave the group and those who did not find alternatives stuck on. Then there are others who hung on in the belief that some day if the airlines recovered, then they would stand to benefit immensely. In most cases, these were intelligent individuals taking calculated career risks. Now trying to convert that into an act of charity or benevolence towards Vijay Mallya is nothing short of being ingenuous.4. Kingfisher Airlines had no chance to be redeemed:No business is irredeemable. The US managed to redeem the sinking auto business in the 1970s and 1980s against the onslaught of Japanese competition. Look at American banks. Most of them were virtually bankrupt at the peak of the Lehman crisis in 2008. But all of them were redeemed by the government and are surviving today; much happier than before. The next in line could be shale oil and here again the US government is likely to bail them out with a heavy bill to be footed by the taxpayers. Take the Indian context itself. A company like Satyam, which had become a shell company was revived with support from the government and competition and redeemed. It is therefore hard to believe that Kingfisher Airlines was not redeemable given the right amount of capital, the right model and a new management. It was just allowed to die!5. DGCA had no choice but to cancel their flying license:The question is why did the DGCA not cancel the flying license of Spice Jet. They were in a similar financial situation like Kingfisher Airlines and were also defaulting on dues to creditors and suppliers. In the first place, DGCA had no business to cancel the flying license of an up-and-running airline. The DGCA should have known that the day the revenues stop coming into the airlines, it was as good as dead. This is not the first time that the regulator has precipitated a crisis by cancelling a business license. We have seen that happen in the case of Sahara, FTIL group and many years earlier in the case of Global Trust Bank. There is a larger regulatory debate that needs to be addressed. If the DGCA had put the requisite checks and balances rather than cancelling the license, then the airline could have survived to fight another day. After all, who would not want to run an airline business when crude oil is quoting at $35/bbl.6. Kingfisher Airline was a victim of unprecedented leverage:To some extent it is true that the airline need not have taken so much of debt. That is always easier argued in retrospect. As an entrepreneur, your primary goal is to revive the business by taking that big risk on the future. But Kingfisher Airline is not alone in this debt tangle. Take the case of the Jaypee Group. With a group market capitalization of Rs.5,500 crore, the group has debt to the tune of Rs.70,000 crore. How many people really think this is sustainable? How will Bhushan Group survive with Rs.40,000 crore of debt and a flailing steel industry. Vijay Mallya was hardly the most indebted promoter in India. He was far from it! He was probably the most flamboyant, but to hold that against him would be to miss the real hard numbers.7. Banks were taken for a ride by Kingfisher Airlines:That is the biggest joke going around in Indian business. How do you justify IDBI Bank lending Rs.900 crore to the company after its license was cancelled. Were there no checks and balances at the bank? Ironically, this is the same bank that is going to be used by the current government as a template for a strategic stake sale. Take the case of the consortium of banks led by SBI. They all had taken a business decision and had been given requisite backing for their loans. That many of the intangible assets became worthless after the cancellation of the license, is not the fault of the promoter. Banks have their own surveillance and monitoring mechanism. It would therefore be interesting to understand why none of the banks flagged off the case for so many years.8. Banks did the best that they could to recover their dues:Sorry, they did not do their best. In fact, the day the license was cancelled the banks ought to have gotten together and secured a stay against the order. Banks knew perfectly well that the day the license was cancelled, the value of the brands and trademarks of the airline would literally amount to nothing. They should also have known that stopping a running business is like kissing goodbye to their dues. Why did the banks not intervene and force the airline to make a clean breast of its assets and liabilities back in 2012 itself. I am sure if the banks had been more vigilant with public money, this could have largely avoided.9. The government has little business in a private enterprise:That is not acceptable. Agreed, the government need not run business but where larger lender and employee interests are involved, the government should surely have a mechanism to address the issue. The truth is that the government has the mechanism! Again, I go back to the case of Satyam. The government did intervene to protect the interests of employees and creditors in that case. Government could have had a temporary management take over and manage the transition. Even if there were no buyers or partners, it could have managed to handle the liquidation of assets and proportionate payment of liabilities in a more smooth manner. The fact is that the government just let the problem fester for the last 5 years.10. If Mallya, has no money how is he buying Formula One teams?Frankly, even I do not have an answer to this question. My point is that this issue is immaterial. Most of the anti-Mallya brigade seems to forget that in a limited liability set-up, the promoter can only be held personally liable to the extent of his personal guarantees. Once these are exhausted, it is imbecile to worry about whether he is buying Formula One teams or whether he is partying in the Caribbean Islands. Unless there is clear evidence of any wrongdoing on the part of Vijay Mallya personally, the public should stop worrying about his private life outside the Kingfisher Airline. He may still be a wealthy man but if that is a reward for his risk-taking as an entrepreneur then he is perfectly entitled to keep it.To cut a long story short, Kingfisher Airlines was not the first and will not be the last business failure. It is more important to understand that, apart from Mallya, the employees, creditors, banks and the regulator also contributed to precipitating the crisis. The truth may, probably, never be known. But in the meantime, we must stop salivating in the midst of this dirty hype.Source: https://www.linkedin.com/pulse/10-big-myths-surrounding-kingfisher-airlines-debacle-harihar-t-s

Mallya had grand plans for the airline when he launched it. The project to launch the airline was code-named ‘Project Thunder’ and the launch date of Kingfisher Airlines was fixed close to his son Sidhartha Mallya’s birthday. Urban legend has it that the airline was a gift for the son.In 2007, he got lucky (or unlucky).He bought the bleeding Air Deccan, India’s first low-fare carrier, promoted by G.R. Gopinath. Kingfisher Airlines merged Deccan Aviation Ltd, which ran Air Deccan, with itself in April 2008. Initially, Mallya rebranded Air Deccan, which was a household name then, to Simplifly Deccan and later to Kingfisher Red.In September 2008, Mallya launched Kingfisher’s first international flight—from Bengaluru to London. Then the global financial crisis struck. Kingfisher survived the first few years of the crisis, but eventually the financial pressure started showing. It didn’t help that the company was managing two brands, one high-end, one low-cost. “It was difficult to brand the airline as high-class and yet be a low-cost airline at the same time’’.The airline had to cut its fleet to 28 planes from 66 owing to a resulting cash crunch. It started bleeding money. Payments to vendors and employees were delayed. Other companies that were part of Mallya’s UB Group extended loans and bank guarantees. Mallya himself pledged his shares in those firms and pumped money into the airline.Mallya tried to find a foreign airline that could invest in Kingfisher but Indian rules at the time did not allow foreign airlines to invest in Indian ones. Mallya, who was still an MP, lobbied to no avail. Operations suffered. Service deteriorated, Cancellations became common. And employees struck work demanding delayed salaries.Finally, the government suspended Kingfisher’s licence.Gopinath, the founder of Air Deccan, has had a blow hot-blow cold relationship with Mallya but he still speaks of him fondly.He believes there was a conspiracy to kill Kingfisher.Indeed, a month after Kingfisher was grounded in late 2012, the government cleared the proposal to allow foreign airlines to invest in Indian ones.“Kingfisher Airlines failed to understand the functioning of the airline in terms of key pressure points, both revenue and cost drivers, and more importantly, the need of capital to be able to withstand external shocks. This is true of Indian aviation and not just one carrier, but the impact of a combination of all of these hit Kingfisher more than the others,” says a former Kingfisher executive on condition of anonymity.Today, Kingfisher Airlines owes banks around Rs.7,000 crore.And it is just a memory, a fond one for some who enjoyed the good times while they lasted.

First of all we need to differentiate between personal borrowings and corporate borrowings. Whatever I have read, Vijay Mallya has not defaulted on loans in his personal capacity. The loans which are in default are loans taken by Kingfisher Airlines, which hasn’t flown since October 2012. Kingfisher Airlines is separate entity from its promoter Mr. Mallya. Company's all assets, offices, aircrafts are now owned by the banks now. As they are unable to recover money from these assets they are after Mr. Mallya and directors to get remaining money.SBI, the leader of the consortium, has the maximum exposure at Rs.1,600 crore, followed by Punjab National Bank (Rs.800 crore), IDBI Bank Ltd (Rs.800 crore), Bank of India (Rs.650 crore), Bank of Baroda (Rs.550 crore), United Bank of India (Rs.430 crore), Central Bank of India (Rs.410 crore), UCO Bank (Rs.320 crore), Corporation Bank (Rs.310 crore), State Bank of Mysore, an SBI associate bank (Rs.150 crore), Indian Overseas Bank (Rs.140 crore), The Federal Bank Ltd (Rs.90 crore), Punjab and Sind Bank (Rs.60 crore) and Axis Bank Ltd (Rs.50 crore).Kingfisher, started in 2005 had a bad business model, then in 2007 it bought loss making Air Deccan and merged with itself. From inception it never made any profit. Ultimately in Oct'12 it stopped flying when no one was ready to give it fuel on credit. It left huge unpaid salaries and taxes.Coming to your question, the company defaulted on payment and not Vijay Mallya. He is called wilful defaulter as he had given certain personal guarantees and also he was Chairman of Board of Kingfisher Airlines. Technically, a default is considered to be wilful when a borrower has not repaid when he can do so; when sanctioned funds have been used for other purposes; when the borrower has siphoned off funds; or when the borrower disposes of the assets pledged for availing the loan without the bank’s knowledge.Thus he can legally rome around freely as long as anyone can prove in court that he siphoned off money or the assets of Kingfisher airline or he bribed banks to get additional loans. Till then he can only be tagged wilful defaulter and be ineligible to borrow. One must consider that he also has paid heavy price for the adventure. He lost his prized possession United Spirits to Diageo and Mangalore Chemicals and Fertiiser , as he had pldged their shares with banks who sold it off once Kingfisher defaulted on loans. He may not be roaming on streets, but his wealth is considerably reduced.