[GTO]

My daily newsletter from Times Of India (their 'daily brief" is highly recommended) makes some interesting points.

How come the banks are stepping up to save Jet Airways, but didn't do the same for Kingfisher?

The similarities:

Months before Kingfisher Airlines stopped flying (in October 2012), the carrier was in a similar situation as Jet Airways today. It struggled to pay salaries to its 7,000 employees (as Jet has done since September last year), defaulted on payments to lenders (Jet defaulted on its payments in December) and was forced to cancel flights (due to pilot protests compared to unpaid lease in the case of Jet).

When Kingfisher was grounded it had an outstanding debt of Rs 7,000 crore (the figure is over Rs 9,000 crore now). Jet owes about Rs 10,000 crore to lenders.

The factors that led to the mess were similar, as well — high fuel prices, weak rupee and cut-throat competition. Plus, like Kingfisher's acquisition of Deccan Airways accelerated its downfall, a major cause of Jet's financial troubles is believed to be the expensive acquisition of Air Sahara in 2006 (which some say was a move to thwart Kingfisher from acquiring it).

While keeping Jet airborne is about the market (it controls a sixth of the domestic aviation market) and (16,000) jobs, the same was true for Kingfisher too (in 2007 the airline had almost the same market share as Jet and Jetlite combined). Banks were criticised for not seeing signs of trouble at Kingfisher on time. While the banks seem more proactive this time, Jet has been in the red (its net worth has been negative too) for over five years.

Mallya had recently tweeted:

[akshaymahajan]

If the order of these two going under was the other way round, we may have been saving Kingfisher today with Mr Goyal tweeting this.

[sukiwa]

I had exact same question couple of weeks back during a break; just didn't post it as it would get be dismissed as 'coffee table/chai-tapri discussion'.

Wonder how this can't be termed as bail-out similar to US automakers from last decade.

[karan561]

Dawood Ibrahim
Sharad Pawar
Naresh Goyal

Just search these 3 names together on Google & there would be enough articles available which might have the answer to your question GTO.

Related Articles;

A Jet Propelled By Don Ibrahim
Subramanian Swamy says first find out real owners of Jet Airways
Did Dawood Ibrahim Aid the Rise of Jet Airways – and Naresh Goyal?

[Turbanator]

One of the reasons I can think of is the perception/ image of Dr. Mallya. He was seen more as a flamboyant rich business guy and giving money to one of his companies at a time when he had other earnings would have not looked politically correct. I think, he got into overconfidence and probably given another chance, would sit with the Banks/ lenders and settle. But that's just me thinking as a naive and he may have altogether different plans.

[Nonstop-driver]

Originally Posted by GTO

The factors that led to the mess were similar, as well — high fuel prices, weak rupee and cut-throat competition

A big factor often overlooked is the lion's share cornered by Air India which doesn't need to worry about the losses. This applies to KF and Jet equally.

[libranof1987]

Originally Posted by sukiwa

Wonder how this can't be termed as bail-out similar to US automakers from last decade.

Unions. Also, one of the most significant causes for the decline of the Big 3 were/are the Japanese; and that stirred up enough nationalistic-action to save the companies.

Originally Posted by karan561

Just search these 3 names together on Google

+1

Another factor, I believe, is also the fact that Etihad (a cash rich Abu Dhabi state-owned airline) has a 24% stake in the airline. And Elections probably acted as a catalyst to get things moving.

[ashis89]

I had similar questions in mind when I read of this news. And I don't have an answer to this. However I can think of the following reasons:

1. Election next month

2. News of job loss, unemployment

3. Too big to fail (similar to #2 above)

4. Impact on air fares due to Jet Airways winding up operations

5. Negotiating skills of Mr. Goyal? I read an article recently on this man. On the other hand, the flamboyant image of Mr. Mallya didn't go down well. (IMO he was made a scapegoat but he wasn't a fraud as he is made out today. I could be wrong and this is OT).
https://www.thehindubusinessline.com...le26636716.ece

Point #2-4 all lead to #1 which is why probably Govt. is interfering and wants Jet to be bailed out.

[gupta_chd]

The most important reason is the one for which Vijay Mallya may be extradited to india - Money Laundering.

There is enough evidence of money laundering of Kingfisher Airlines funds to Mallya's other businesses and personal use in the sunset years of KFA. There were panama papers leaks as well pointing to offshore investments.

[filmaka]

The Banks should have bailed out Kingfisher Airlines, It was a global Standard in Luxury and was years ahead of its times, Till date no airlines Domestic or International can still match the style of Kingfisher, Their Buses were amazing, The Inflight services and food was amazing. The airlines was bringing good name to the Indian Hospitality industry. Wish the airlines and those standards can be brought back to the Indian Aviation Industry.

[ajmat]

1. Upcoming election - note it has been a Govt owned bank pressurised to take over
2. Related to 1 - tremendous loss of jobs
3. Rising fares and freight due to diminished capacity (my neighbours relatives drove in from Kochi instead of flying due to high fares)
4. Common factors apart, am not sure if Kingfisher followed the proper protocol in getting the loans. Still sub-judice, also whether the loans actually reached the airline
5. Jet is slowly sinking although it is now becoming more rapid, KF happened a bit more suddenly

[binand]

Originally Posted by GTO

How come the banks are stepping up to save Jet Airways, but didn't do the same for Kingfisher?

None validated, and in no particular order:

• KFA was already accused of siphoning off past loans (to pay lessors) to invest in VM's other interests;
• KFA was already reeling under the damning allegations made by Veritas in their report;
• KFA's debt was restructured once in 2010 and VM was asking for a second one;
• NG chose to quit JA board (though after a lot of hemming and hawing) whereas VM absolutely didn't.

[aaggoswami]

Originally Posted by Nonstop-driver

A big factor often overlooked is the lion's share cornered by Air India which doesn't need to worry about the losses. This applies to KF and Jet equally.

Originally Posted by ashis89

However I can think of the following reasons:

For sure this a bewildering.
In my view, banks should have helped Kingfisher airline, a lot of jobs were at stake as they are right now with Jet. Moreover, the help to Kingfisher could have been linked with certain performance parameters.

Helping Jet Airways is a step taken in lieu of upcoming elections, nothing more I guess. This is clear one sided behaviour displayed to help one airline and not the other. On similar lines, am wondering how Air India is getting its funds. They are in red since long and a lot of money from government has flowed into it (please correct me if I am wrong). If Air India gets assistance, others should be getting it too. This sort of government support to Air India has lead to Air India becoming a larger player with lots of losses (which eventually results into help from government) and other players suffering losses to the extent of becoming extinct.

[srishiva]

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[JoshMachine]

Difficult to attribute the comparison of the separate treatments being meted out to Kingfisher and Jet, to maybe just any specific or single factor.

There seem to be many potential factors in isolation and possibly, a combination of them as well.

When Kingfisher went down, it was probably the first major instance of its kind in the Indian aviation industry.
And that scenario was immediately followed by the Mallya family doing all the incorrect things - partying hard, his son being spending money insensitively etc.
There were also associated news/rumors (which later got confirmed subsequently) of Mallya Senior doing fraud and involved in money laundering activities.
However, that is not the case with Mr. Goyal for now, atleast.

Even though are some factors which are similar in causing the downfall for both airlines - like the typical aviation fuel price cycles, consumer patterns of travel etc. but what seems to be probably working in Jet's favor to attract the attention of the lenders, is its relatively better financial rigor (net sales or revenues as example) over a period of time.

With airlines (and for some similar capex-heavy industries), the percentage of investment in fixed assets vis-a-vis its debts plays a very vital role.
SBI, being one of the primary lenders, doesn't want to let go of Jet's asset blocks and wants the airline to be up and running again for some time, before it may decide to sell off some stake.

Having said this, one cannot ignore or discount the current geo-political environment with news reports saying that the present government is keen to provide a protective umbrella for the jobs scenario, keeping the oncoming elections in mind. And that, they may influence or be able to issue policy modifications to suit the revival of Jet in a way.