If one reads the Indian media on a daily basis, one is led to conclude that Force India owner Vijay Mallya’s business empire is in a mess, or Mallya does not have very many friends in the Indian media; or both. There is no sign of trouble in F1 at the moment, thanks it seems to money that is being paid by sponsor-partner Sahara, but elsewhere in Mallya’s empire things are not going well, although he continues to swan around at races, partying on his superyacht in Monaco and Valencia and being unrepentant about his lifestyle. Over in India this kind of behaviour has annoyed employees of Kingfisher Airlines, who have not been paid for months. Some of the pilots went on strike at the weekend, causing the company’s executive vice-president Hitesh Patel to send an email that finally acknowledged that the business is in deep trouble. Patel said that it was “a critical juncture, which will define whether we make it or not”.
“I understand and empathize with the amount of personal issues you and your family have been through due to salary delays,” he continued. “I also understand that in spite of our best and most sincere endeavours, we may have failed on the timelines committed… your actions over the last few days continue to do irreparable harm to the airline. I urge you to please resume work.”
Mallya joined in, telling the pilots that: “Damaging the future of Kingfisher in the public eyes is not going to produce cash. This only makes my recapitalization efforts more difficult by causing concern and apprehension among our potential investors.”
Pilots, however, told the Press Trust of India that “Vijay Mallya’s communication to the employees conceals more than it reveals. While he claims over 75 per cent staff have been paid, he conveniently ignores the fact that he has still to pay four months’ salaries to them. Now we have come to a situation where we are left with no option but to move the labour court over the issue”.
The Wall Street Journal reported that the airline has its “head in the clouds” over the pay dispute. The airline is currently flying only around a dozen planes, the remainder having been either repossessed by lessors or grounded because of maintenance problems.
The airline, which was started in 2005, has never made a profit and its strategy of borrowing to create growth has clearly failed, leaving the business with total liabilities of around $2 billion. The airline owes lessors, suppliers, lenders, airports, employees and the Indian government. Much of the debt is guaranteed by other companies in Mallya’s UB Group. Kingfisher has already shut down its low-cost operations, ended all international flights and contracted its operations considerably from 400 flights a day.
According to the Firstpost website, lending banks have not shut Kingfsiher down because they are looking for a bigger fish and are “humouring Mallya” because he has pledged shares in his various liquor businesses, which generate plenty of cash, and they are aiming to grab that when the airline finally fails. There have been suggestions in F1 circles for some time that Sahara’s involvement in Mallya’s empire is for this reason alone.
“There is a good chance that whoever is now lending money to Mallya is buying not the airline – which is anyway a dead duck – but his liquor business,” the website reported. Analysts seem to agree that Mallya is now facing the risk of losing his profitable businesses because of the airline.
Lenders to the airline have now asked for the value of the Kingfisher brand to be reassessed. The brand was given as collateral against loans in 2010. At the time the brand was deemed to be worth $180 million. A downward revision of the brand’s value would mean that the company would have to give more collateral for the loan either in cash, pledged shares or other assets, which will not be easy in the current situation.
In Monday trading Kingfisher Airlines shares dipped below their face value to $0.18, hitting a record low on the Bombay Stock Exchange.
There have also been reports in recent days, quoting a whistleblower, that the Bank of Maharashtra made loans to United Breweries that were diverted to Kingfisher. A UB Group spokesperson said that there was no “practice of inter-company funds diversion.
Reports over the weekend in India suggest that UB is now considering the option of divesting non-core assets including its Indian Premier League team Royal Challengers Bangalore… There are reports that some of Royal Challengers Bangalore’s leading players have yet to be paid for playing in the last edition of the the Indian Premier League.
At the same time there are reports that Mallya’s share in the UB Group has slipped from 50 percent at the end of March to around 36 percent because of an increase in the number of shares, following the conversion into equity of warrants issued to an entity, LKP Finance Ltd, which now holds over 16 per cent stake in the business.
There was further bad news when it was revealed that the Allied Blenders & Distillers’ brand Officer’s Choice has toppled UB Group’s McDowell’s as the world’s largest selling whisky brand, according to International Wine & Spirits Research. The report said that McDowell’s has dropped to third behind Officer’s Choice and Diageo’s Johnnie Walker.
On top of all of this, Mallya has come in for criticism because the UB Group has just shifted the ownership of his personal Airbus A319 from Kingfisher Airlines to a group holding company. Reports suggest that this is to prevent lenders getting hold of it.
Mallya loves the profile that F1 provides and has used it considerably to promote himself, however it all has to be paid for and it will be interesting to see whether he can keep all the balls in the air as he continues to juggle his finances in the weeks ahead. If not, it seems that there are plenty of lenders ready to swoop in for the kill. Where this leaves the F1 team remains to be seen. There have been whispers for some time that the operation might be for sale, but to date no-one is buying.