It is becoming increasingly clear that Kingfisher Airlines is well beyond rescue and only a miracle can save it. That miracle can come in either of two ways, or maybe even both.

First, Vijay Mallya, the high-flying promoter of the airline agrees to put his money where his mouth is. Let's be clear on this. He needs to infuse nothing less than a few thousand crore into the company to make it stand again, or shall we say, keep it flying.

Or second, Kingfisher is able to attract an investor — domestic or foreign, airline or non-airline — with deep pockets and strong guts to take on the balance-sheet of a company splattered in red all over, and that is not a reference to the airline's official colour or its name.

The odds on either of these happening are long. Savvy Mallya would be loathe to push good money after bad. Indeed, he has reportedly refused to give a personal guarantee sought by banks to refinance the company.

And it is unlikely there are any suicidal investors out there with cash to wash down the drain. Though the government is in the process of liberalising rules for investment by foreign airlines in Indian airline companies, Kingfisher is unlikely to attract interest.

With accumulated losses of Rs.6,524 crore, outstanding loans of Rs.7,057 crore, overdues to tax authorities, airports and fuel suppliers, and less than half of its fleet flying, Kingfisher does not present a pretty picture for any airline company.

About the most valuable assets it has are its flight slots and parking rights at different airports across the country and the licence to fly international routes. From a potential investor's viewpoint, these may not be good enough to compensate for the huge liabilities on its balance sheet.

Bank bailout

There are those who argue that banks should rescue the airline by infusing more funds. Even the Deputy Governor of the Reserve Bank of India, Dr. K.C. Chakraborty, is on record saying that banks are not just commercial but also risk-taking entities. He even said that if banks felt that by giving a little, they could recover their entire money, that's what they will do.

This is rather unusual RBI-talk especially if you consider that State Bank of India and a couple of other banks have already classified their loans to Kingfisher as non-performing assets (NPAs). So is Dr. Chakraborty advocating that banks continue to lend to borrowers even after their accounts turn NPAs?

Surprising as this statement is, we have to be fair to the banks too. They gave Kingfisher that one last chance last year and are now sitting on an investment that has eroded considerably. Just a year ago, the consortium of banks that lent to Kingfisher converted a third of the then outstanding debt amounting to Rs.1,303 crore into shares.

Kingfisher was then valued at Rs.64.48 a share; today it is trading at Rs.24.50. The banks, which together own 23.37 per cent of Kingfisher thanks to this deal, are now sitting on a potential loss of Rs.465 crore. This is apart from the various term and working capital loans that they have given to the airline for which repayments have stopped since last September.

So, which prudent bank would consider lending to Kingfisher now? The manner in which the stock market pummelled the shares of State Bank last Wednesday when rumours surfaced of the bank lending to Kingfisher is ample indication of what investors think of the whole issue.

End of the runway?

The end of the runway appears well nigh for Kingfisher at the moment but there are still those who believe it should not be allowed to fail, and this includes the government. The ostensible reason is that fares will rise if one carrier is grounded. But that is not a convincing argument.

True, fares will take off in the short-term, as is happening now even when Kingfisher is flying to a curtailed plan. The reason for this is the sudden disruption caused by Kingfisher's cancellations. This should settle down with time. Besides, fares are abnormally low now as airlines compete with one another to grab passengers. This is a fatal race to the bottom. Kingfisher's exit could restore some sanity in the industry. Passengers used to flying at train fares will protest but will eventually have to accept the reality. Of course, the government has to keep a sharp watch to ensure that airline companies do not exploit the situation.

There appears to be little reason therefore why Kingfisher should be artificially propped up with ventilator support when its vital organs have failed. In a market economy, companies do fail and there is no better example of this than Lehman Brothers which went belly up in September 2008. Yes, there will be turbulence when a company fails as investors, employees and bankers lose. But that is no defence to keep a company going, especially one as badly managed as Kingfisher.

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