[Turbanator]

Originally Posted by laser2707

This may well turn out into a diplomatic row between India & the UK.

He has applied under some European law to which UK is also a signatory.

Any other Country, they would have taken the money first, whatever possible. Let’s accept that it’s not just the money that people are after. Getting him back here is much more than the money.

Though EU is mostly sympathetic with India but it will not be so easy.

[ValarMorghulis]

Originally Posted by V.Narayan

+1. Aviation circles are quite clear about who in power helped him flee in the nick of time...

Pray tell us too sir... It will be interesting to know for the uninitiated in this arena.

Originally Posted by PearlJam

The supposed king of good times, huh? For the life of me, I couldn't figure out why someone spending crores on lavish parties, would claim reimbursements as small as Rs. 6000 as a Rajya Sabha MP?

One thing I've seen even the most handsomely paid people do, is file for reimbursement, if valid and applicable. I've seen people earning upwards of INR 1cr pa file for company reimbursement of Rs 250 for cab/ taxi. If it is valid and allowed, specially the rich do not hesitate to claim money. After all, money is money.

Originally Posted by Sebring

If he did not get into aviation, he still would be king of good times. That was a reckless move...

Richard Branson famously said, "If you want to be a millionaire, start with a billion dollars and go into airline business".

[mazda4life]

Originally Posted by Sebring

My uncle worked for UB MEC batteries, and those were the finest batteries around (the UPS battery in my his house lasted 11+ years). He sold it. Kissan was the best in its segment (now, a market leader), he could have just had a vision for the brand.

We being a Bangalore based family and UB being a local company , we had many family and friends working for UB from his father's time, one story that is still imprinted is the shaving blade anecdote about Vittal Mallya's ( Vijay M's father) financial discipline. One of his most trusted manager left the company after Vijay Mallya took over the company and a senior of mine who was in the press shared the bizarre stories like the 3 AM meetings when VJM was owning Asian Age edited by MJ Akbar and all the employees had to be ready with numbers and figures. I think he wanted to model himself as the Richard Branson of India and hence ventured into the airlines business and which primarily led to his downfall. With reports that he has applied for asylum , it will be a long road to get him extradited back to India.

[Reinhard]

Originally Posted by Sebring

If he did not get into aviation, he still would be king of good times. That was a reckless move.

Originally Posted by ValarMorghulis

Richard Branson famously said, "If you want to be a millionaire, start with a billion dollars and go into airline business".

Any large business move is a gamble in the end. If it works out, the decision maker is a hero. If not - he/she ends up being a case study like Mr. Mallya.

I think the decision to enter airline industry when he did, was quite smart. It was exactly coinciding with the dawn of boom in our domestic aviation sector. But the smartness ended after that decision. The "Make it large" attitude towards a brand new infant airline with a totally debt oriented model made it crash, with a lot of investigators fighting for the black boxes and scrap metal.

Had they played it safer, within own capabilities like InterGlobe or even Spice did, things might have been very different. The decision to enter aviation wasn't too reckless. Everything after that sure was.

[ninjatalli]

^^IIRC, Kingfisher airlines was doing pretty well on its own (atleast the visible / public part). I remember in those days, getting to sit in a Kingfisher flight had a slight premium-ish edge as compared to Jet or Air India or the low cost options. Brand image was brilliant and most corporate fliers would push their support team to get KF tickets if the flight timelines suited them.

It's the Air Deccan purchase that sinked the ship, or at least started the downward slide. I remember reading Captain Gopinath's autobiography on how initially it felt like a good idea but he had his doubts on the different operating models running in parallel. KF bought Air Deccan for overseas flight options which he could have waited for 3 years (and scaling up to meet min fleet size requirements) to get it on its own.

As others pointed out, he probably expected to be bailed out in case of financial constraints.

[SnS_12]

Originally Posted by ninjatalli

It's the Air Deccan purchase that sinked the ship, or at least started the downward slide. I remember reading Captain Gopinath's autobiography on how initially it felt like a good idea but he had his doubts on the different operating models running in parallel. KF bought Air Deccan for overseas flight options which he could have waited for 3 years (and scaling up to meet min fleet size requirements) to get it on its own.

Air Deccan deal is what dug up his grave.

Back in 2007 Air Deccan posted a net loss of Rs 213.17 crore for the third quarter ended March 31, 2007. The net loss for the nine-month period ended March 31, 2007 was Rs 246.50 crore.

But as per media reports Vijay Mallya bought Air Deccan with his eyes closed. His team never went through the books of the loss making Air Deccan before Mallya agreed to buy it for a total consideration of Rs 1000 crore in 2007.

Captain Gopinath told a reporter that what impressed him about Mallya was how badly he wanted the airline and how swiftly he had moved to bag the deal. When some reporter asked him whether that meant the deal had been made without any due diligence or checking the balance sheet, Captain Gopinath replied that it was true that during the negotiations, neither Mallya nor his officials ever asked to examine the books. They took Captain Gopinath's assurances at face value because they were eager to go through with the deal.

Ultimately, Mallya and his team failed to understand that, though the business model of Air Deccan was low-cost, almost 80 per cent of the costs are irrespective of the airline structure. Moreover, after paying such a high premium Kingfisher would have had to invest heavily to turnaround the loss-making Air Deccan.

[srini1785]

Originally Posted by SnS_12

But as per media reports Vijay Mallya bought Air Deccan with his eyes closed. His team never went through the books of the loss making Air Deccan before Mallya agreed to buy it for a total consideration of Rs 1000 crore in 2007.

Captain Gopinath told a reporter that what impressed him about Mallya was how badly he wanted the airline and how swiftly he had moved to bag the deal. When some reporter asked him whether that meant the deal had been made without any due diligence or checking the balance sheet, Captain Gopinath replied that it was true that during the negotiations, neither Mallya nor his officials ever asked to examine the books. They took Captain Gopinath's assurances at face value because they were eager to go through with the deal.

That is Parkinson's law in action : "The time spent on any item of the agenda will be in inverse proportion to the sum [of money] involved.”

https://fs.blog/2013/12/parkinsons-l...ramatic%20form.


https://en.wikipedia.org/wiki/Law_of_triviality

Although stated in jest. There seems to be some truth to it.

[V.Narayan]

Originally Posted by SnS_12

Ultimately, Mallya and his team failed to understand that, though the business model of Air Deccan was low-cost, almost 80 per cent of the costs are irrespective of the airline structure.

+1 to that. Air Deccan was not a low cost airline. Air Deccan was a low revenue per seat-mile airline. Fundamental difference between the two. To be a low cost airline you need to be superbly well run. Air Deccan was a shabbily run airline

[lapis_lazuli]

Originally Posted by V.Narayan

+1 to that. Air Deccan was not a low cost airline. Air Deccan was a low revenue per seat-mile airline. Fundamental difference between the two. To be a low cost airline you need to be superbly well run. Air Deccan was a shabbily run airline

Mr. Narayan, I always wondered if "low cost airline" even exists. Maybe you could enlighten me, the veteran that you are. Not necessarily in the context of this thread.

If fuel is priced same for all players, if A320 planes cost same for all players, if pilot salaries are same, if airport charges are same, where exactly does the concept of low cost airline come into play ? What exactly is low cost, here? How exactly is the cost low?

[msd7]

Originally Posted by lapis_lazuli

If fuel is priced same for all players, if A320 planes cost same for all players, if pilot salaries are same, if airport charges are same, where exactly does the concept of low cost airline come into play ? What exactly is low cost, here? How exactly is the cost low?

I believe it is the fleet optimisation and management that makes an airline a LCC. For eg until very recent Indigo only had A320's in its fleet, so they had to hire only one kind of pilots which made their duty roster very easy to change and also enhanced the efficiency of their staff. Added advantage was that the rosters could easily be changed in case of leaves etc, so less delays.

Also LCCs earn a great margin on ancillaries like in flight food, excess baggage costs and seat selection costs. Additionally they don't have to pay for lounge facilities and they generally do not have business class which means increase in economy class seats.

Ps :- I have none of the experience of Narayan Sir

[V.Narayan]

Originally Posted by msd7

I believe it is the fleet optimisation and management that makes an airline a LCC.... Indigo only had A320's in its fleet, so they had to hire only one kind of pilots........... and they generally do not have business class which means increase in economy class seats.

PS :- I have none of the experience of Narayan Sir

As a chap well into middle age I love to be flattered so don't hesitate to lay it on. You know quite a bit yourself. Kudos.

Originally Posted by lapis_lazuli

.....I always wondered if "low cost airline" even exists. Maybe you could enlighten me, the veteran that you are. Not necessarily in the context of this thread.

If fuel is priced same for all players, if A320 planes cost same for all players, if pilot salaries are same, if airport charges are same, where exactly does the concept of low cost airline come into play ? What exactly is low cost, here? How exactly is the cost low?

Thank you for your question which I'm sure has crossed the minds of several other readers. The note here may not be an expert one but it is directionally correct. The three big costs that dwarf all else are - (i) cost of fleet acquisition (ii) asset utilization (iii) fuel costs and after that we have (iv) payroll costs. There is a fifth that can be managed down and that is maintenance especially of the engines.

Let's address the less differentiating factors first. Item (iv) of payroll costs is broadly similar for all in a given geography so it ceases to be a real competitive advantage. Item (iii) i.e. fuel can be made a few percentage points cheaper either through discounts or longer credit periods depending on which works better given the airline's cost of working capital funds. Even Indian oil PSUs compete with each other to earn the business of bigger and better paymaster airlines. Fuel costs can be a contributor even in the domestic Indian context. They are without a doubt in the international context.

Now for the biggies. Cost of fleet acquisition {item #(i) } is probably one very big factor as the cost of lease to an A rated lessee will be significantly lower than to a B rated lessee. Also airlines such as Indigo, Ryan Air, Southwest book very large orders therefore getting base cost of asset down by 10% to 15% which then is routed through what is effectively a sale and lease back deal at rates with effective interest cost in the low single digit range. So by getting cost of asset acquisition down massively on day one means your competitor can never catch up through the entire life of the aircraft. So let's look at some illustrative numbers. An Airbus A320 CEO {current engine option} list price was around $70MM. A sharp buyer might order 100, in one go, at $58MM a piece and then finance it at 5% p.a. through a 14-year lease of which tenure it needs to hold the machine for only 7 years. So not only has it got the asset cheap, it comes at a sharper cost of finance and he needs to pay off only half the value before returning the aircraft back to the lessor. The less sharp competitor 'low cost wanna be' may order 5 A320s at $68MM and finance them for 9% pa with an obligation to hold the machine for 10 years or worse the full 14 years till the lessor has recovered all its costs. Here itself the cost differential is so high as to make the latter airline a sitting duck from day one. To this structure can be added variations such as Airbus giving the 100 order airline an incentive of say $3MM beyond the price as a one time incentive fee paid on date of delivery. If you read the balance sheets you'll see this. Some low cost airlines' entire profit before tax is this incentive fee in some years!

Then comes item #(ii) -- asset utilization. A modern commercial airliner like a turbine in a power generation house is a marvel of mechanical engineering. When new maintenance costs are very low relative to cost of purchase and the asset is designed to be flogged. It can fly 6 to 8 sectors a day with only on the tarmac overnight checks all through the year followed by a 3 to 4 day first check costing less than $100k before parts then another 18 months of ragda followed by a 7 to 8 day 30-month* check costing less than $200k before parts and so on. Asset utilization needs excellent process work flows, training and co-ordination. Given the rapid 30 minute turnarounds {sometimes shorter}, need for punctuality in uncertain conditions {weather, ATC}, extreme pressures of flight safety in everything you do, the strongly regulated environment, maintenance schedules etc this asset utlization does not happen with average or above average managements. Many strive for it, all pretend they have it but very few achieve it. In India none other than Indigo** have this. 7 sectors versus 6 or 6 sectors versus 5 is, financially speaking, a chasm.

Then under the fifth bucket are the composite engine procurement + lease finance + lifetime maintenance + performance guarantee packages. A little complex to explain in a short note but from my para on asset acquisition you'll get the drift that this very significantly reduces lifetime engine costs and the die is cast even before the first commercial flight.

These are the big factors that help make a well run airline cost efficient. Basically whether an airline can operate at a low cost or not is already decided by the time the aircraft joins the fleet. There are other operating costs and seat capacity utilization costs too that are important but slightly less impactful in the overall scheme of swinging things such that the competitor is forever playing catch up.

* Checks are a function of time, cycles and flight hours. It would typically be called a say 30-month 4000-hour check or something like that.
** I have no business or personal interest in Indigo