While the F1 world is waiting to hear about Vijya Mallya’s plans for Force India drivers next year, over in India things have not much improved for the beer baron-turned airline owner. In the last couple of days five of the planes belonging to his grounded Kingfisher Airlines have been taken back by the US-based leasing company ILFC and another one has been confiscated by tax authorities.
Despite the fact that Mallya recently announced that he was selling control of his family’s whisky business to Diageo, it seems that money is not yet flowing into the airline and the latest reports in India suggest that the airline has been asked by Mumbai Airport to vacate the space it occupies.
There have also been stories that banks have adopted a tougher strategy towards Mallya after he announced that he would be injecting $80 million into the F1 team, saying that he should pay his debts before pouring money into his toys. One option for the creditors would be to invoke the personal guarantees that have been given over the years for loans, which would in effect mean that the banks would take over the shares and thus (perhaps) win control of the business.
There have also been reports that Abu Dhabi’s Etihad Airways is considering taking a 48 percent stake in Kingfisher, in a deal worth $553 million. This does not make a lot of sense given that the airline has debts of at least $2.5 billion and such a deal would value it at only $1.1 billion.
Etihad is keen to grow its business in the region and has been buying stakes in other airlines, but it is hard to see the logic of a Kingfisher deal.
Time will tell, no doubt.
Can’t see Etihad deal happening – Kingfisher has lost all its winter routes to others and has to apply again in the spring if its business plan is approved by the IAA as ‘fit for purpose’.
the etihad/kingfisher deal may make sense for both in that it could feed traffic into etihad’s great international network and it gives them greater access to a growing economy with a billion new customers. ethihad already has similar deas with airberlin, aer lingus, and virgin australia. could it be a poor decision? perhaps, but etihad has made few of those in recent memory.
I don’t see why would buy into something worth $1.1 billion, in order to acquire debts of double that. I must be missing something.
If 1) there is a perspective of generating new revenue streams for Ethiad through channeling KF passengers corridor through Ethiad’s hubs, combined 2) with an strategic plan to turn KF into an operating profitable ops in the medium term, it could make sense… I see as purely financial viability exercise … Also this may be aligned with a long term strategy, as Ethiad folks maybe looking into future scenarious, I.e.How powerfull will be medium class spending in Asia 5 years from now? … All in all it could make a lot of sense indeed. Anyhow that is pure expeculation if we can not appreciated figures …
It seems you’re confusing equity and enterprise value. Etihad is valuing the equity at $1.1bn. If Etihad believes starting an airline such as Kingfisher from ground up may cost more than $3.3bn of capital (debt + equity), this deal might make sense. I’m not saying it’s a good deal (for all you know the equity is worthless because the debt level is too high), but I think that’s what you’re missing.
I am not confusing anything. It is a lousy deal. End of story.
Lousy deal for Mallya. Great deal for Eithad.
Mostly win-win situation.
You have it the wrong way round. It is a lousy deal for Etihad and a great deal for Mallya. It will not happen
“There have also been reports that Abu Dhabi’s Etihad Airways is considering taking a 48 percent stake in Kingfisher, in a deal worth $553 million. This does not make a lot of sense given that the airline has debts of at least $2.5 billion and such a deal would value it at only $1.1 billion.”
Reading this text I had the same thoughts anp had. Hard to read it any other way.
On topic: it seems like Mallya is selling all his good business to keep sponsoring his sinking Kingfisher ship. Sad to see how one bad business decision (starting an airline) can lead to an entire (family) empire collapsing. I think there is a lot of envy involved at the people that are delighted to see this happen. HIs self-created bling bling “King of Good Times” image must have something to do with that.
Foreign companies cannot own outright or operate in India unless as a minority shareholder. Kingfisher would give Ethidad access to local connections in India to their own long haul routes. Kingfisher already has the permits, planes and staff in place as a turnkey operation.
The question as Joe points out, is how much is this paperwork worth? To setup partnerships from scratch would probably cost more than $1bn but alternatives such as Jet would want equity to reflect their better financial position.
I believe you will find that its licence is suspended.
Which won’t take more than a few days to be re-issued if the deal goes through..
It is nothing more than an opportunity to increase its reach into different markets.
Almost like running an F1 team. Red bull doesn’t exactly gain any revenue from the hundreds of millions of dollars they pour into the F1 team. They lose the money they invest, but gain partnerships/ business deals/ blah blah…
Its the same thing.
Red Bull gains $100 million a year in prize money and about the same in sponsorship, and that means that the advertising comes very cheaply. They gain a vast amount from F1, otgherwise they would not do it.
How different is it from Eithad picking up a 48% stake in a new market for such a cheap amount? Same thing happened with Redbull when they bought Jaguar Racing.
With the good business model they have, Eithad could eventually create a turnaround for KingFisher and reap the benefits.. just like Redbull.
Seems like a good long term investment. If they can make it work, ofcourse..
Did Jaguar Racing have debts of $2.5 billion. I must have missed that.
Mallaya’s empire, if one can call that house of cards an empire seems to be constantly on the ragged edge of catastrophe, yet for whatever reason he’s been able to avoid going over that cliff. Will he, won’t he, that is the question that many want to see answered once and for all. I’d not be getting one way or the other, truth be told, as things are never as straightforward as they seem when you’re dealing with 7 and 8 zeros.
Will the team exist for 2013? Only time will tell I suppose.
I am sure it will exist.
Dear Joe,
I wonder what kind of cocktails you two have as you hook up with Mr. Mallya at Grand Prix around the world. It sure looks like you two are solid fans of each other. :)
Thanks a lot for your blog. Have a great off season. All the best,
As long as there are no champagne glasses …
I guess the problem with HRT was that it wasn’t insolvent enough!
Ho Ho. And doubtless very true. As I’ve seen here and elsewhere lots of times in order to make a small fortune in running an airline it is necessary to have a large one to begin with.
I believe that hemlock is a traditional Chinese medicine, avoid the Long Island Iced Tea in China Joe!…
Be it Government or private if Etihad came in I doubt that debt would be the same amount the next day.
Half a bil cost, debt written down = easy access to the market I’d guess in comparison to entering cold.
If you take a look at the market in India at the moment, you will find that Etihad would do better to buy an operating airline instead. In fact the talk of a deal with Kingfisher may simply be an Etihad negotiating ploy in its talks with Jet Airways, which is currently asking too high a price for its shares. Etihad and Jet Airways already have a number of codeshare deals and the Abu Dhabi airline wants to buy a big part of the business.
Joe are you suggesting that Etihad management are using the Bernie E playbook for negotiating? Did this rumor/story first appear in the Telegraph or does Etihad have its own pet leaks!
Hi Joe, where you write:
“One option for the creditors would be to invoke the personal guarantees that have been given over the years for loans, which would in effect mean that the banks would take over the shares and thus (perhaps) win control of the business.”
Can you clarify which business? I wasn’t 100% sure whether you meant the banks would invoke the personal guarantees to grab Kingfisher, or whether they would be going after Force India…
Thanks!
The airline
Hmmm, 10 comments so fa,r nothing yet along the lines of “What do you have against Mallya, Joe?”
I’ll be patient, I’m sure you’ll get a couple, at least.
Just read a little more widely and learn about the bloke. I wouldn’t buy a cigarette butt from him.
Neither would I, Joe, but these posts seem to attract comments from people who think this guy walks on water, and would rather bash you for noting his problems rather then kissing his ass.
I wonder if Joe has a dart board in his bed room with Mallya’s face on it.. :p
No. That not be pleasant decoration.
t’would be a horrible thing to wake up to!..
Young Hulkenberg (along with his handlers) is looking more astute with every press release regarding this Mallya character. It is remarkable that the Force India team has been able to perform so well working under the proverbial sword of Damocles that is the Mallya train wreck. From what I can tell, Hulkenberg, unlike Di Resta, was working with no career net beneath him in which to be caught when this clown finally stumbles.
So, maybe that´s the reason for Hülkenberg to switch mid-field teams? Maybe he thinks (or knows) this supposed 80 million into Force India will not come into effect?
If so, smart move by Hülkenberg. One or two seasons with known battlers Sauber will not harm his talent and the unavoidable switch for him to a top team is not endangered, where as that might happen with a (declining) Force India.
It seems there are some talks between Kingfisher and Etihad
http://www.businesstraveller.com/news/kingfisher-confirms-etihad-investment-talks
And the source for information in this article is no other than Kingfisher’s website…
http://www.flykingfisher.com/
This Mallya character has nothing on the other airline mogul currently running a team.
Merry Christmas and a Lucky 2013 to all at Caterham.