New Delhi: Dr Vijay Mallya, the Chairman of United Breweries, has said that his Kingfisher Airlines, despite losses of 347 crores in the first 18 months which, under the impact of rising costs and falling prices, will only have since increased, is “not a mistake”.
He insists “Kingfisher Airlines will never go belly-up”. In an interview to CNN-IBN’s Devil’s Advocate to be broadcast at 2030 hrs IST on Sunday, December 24, Mallya was closely questioned about Kingfisher Airlines.
When it was pointed out that the Airline had lost Rs 347 crores between its start-up in March 2005 and September 2006 and that since then losses have only grown further and was he, therefore, prepared to accept Kingfisher Airlines was a mistake, Mallya said, “The airline was not a mistake…I would not agree with you there at all. Kingfisher Airlines did lose money. It continues to lose money. And I would be wrong if I did not admit it.
However, we are losing a lot less than others. That’s not comforting but the fact is there is a blood bath. There will be a shakeout. We have the staying power and the sustenance that it takes.”
On further questioning, Mallya claimed that Kingfisher Airlines’ “average ticket value … is amongst the highest in the country” and that it was getting “twice the yield of a low fare carrier”.
“Kingfisher is a very well differentiated product and acknowledged (as such). Our average ticket value across our network is amongst the highest in the country. And it (the battle) is only between Jet Airways and Kingfisher. On a typical route we are getting twice the yield of a low fare carrier,” he added.
When pointed out that aviation experts were predicting losses could double in the next two years and several airlines would go belly-up, Mallya insisted that would not happen to Kingfisher Airlines. He went on to claim that Kingfisher had expressions of interest from a number of private equity houses but was in no hurry to clinch a deal because, as he put it, “we aren’t desperately looking for cash”.
PAGE_BREAK
He also insisted that shareholders were confident of the Airline’s future. Here’s an extract from this part of the interview:
Vijay Mallya: Kingfisher Airlines will never go belly-up. We have a wonderful product which is now rated as the best in the Indian skies. We have several expressions of interest from investors. We are actually holding them at bay. And the fact is we are not burning cash to the extent that others are burning cash. Because – and I come back to the fundamental point – of yield.”
Karan Thapar: On November 11, one of your senior executives said there were two private European equity fund houses interested in buying up to 25 per cent of your shares and the deal would be completed in a month. That month is more than over. Has the deal materialised or fallen apart?”
Vijay Mallya: No deal has fallen apart. In fact there have been expressions of interest from more than just two private equity investors. Actually they are (still) talking to us. But we aren’t desperately looking for cash because we have no need to desperately seek cash.”
Karan Thapar: What about the shareholders?”
Vijay Mallya: Shareholders, I think, fully believe in the Kingfisher model and its positioning.”
Karan Thapar: 55 per cent of the shares are with you. What about the 45 per cent that are not Mallya family shares?”
Vijay Mallya: I think their confidence is well demonstrated by the stock price of UB Holdings and the fact that at the last AGM there was resounding support for Kingfisher Airlines.”
Mallya denied he had ever told Forbes.com that Kingfisher Airlines would break-even in its first year. Instead he said that break-even would happen during the financial year 2008-09.
Vijay Mallya: In 2008, the financial year 2008-09. I stick to that but with the current bloodbath it might take may be one year longer.”
Karan Thapar: But not beyond 2009?”
Vijay Mallya: Absolutely not. Because Kingfisher Airlines has successfully demonstrated and achieved much higher ticket values than the competition and we have excellent load factors.”
Talking about the Airlines proposed IPO, which according to Forbes.com has been at least twice postponed and now, according to a statement issued by Mallya on the November 27, will only happen after break-even, Mallya insisted that the Airline had no need to raise public funds and was not dependent on an IPO.
“Kingfisher Airlines and the UB Group has consistently maintained that we are not dependent on an IPO. Our business model did not factor in raising public funds to run this airline…It was never predicated on an IPO. We have a paid up capital of 100 million dollars which is 450 crores…We will fund it and we have put in place funding arrangements quite adequately. And let me tell you our funding arrangements for Kingfisher Airlines are not to cover operating losses. These are largely pre-delivery payments towards aircraft that we have on order,” he said.
He insisted that the fundamentals of civil aviation in India remain, as he put it, “very very compelling”. The only problem was what he called “low fare madness”.
“The fundamentals of civil aviation growth in India still remain intact and very very compelling … The fundamentals remain intact. However, there has been a huge increase in deployed capacity and, of course, there is low fare madness … India doesn’t offer the scope and potential to be a low cost economy when it comes to aviation. In fact the costs are very high,” Mallya said.
PAGE_BREAK
Talking about Kingfisher Airlines’ prospects during 2007, when the Airline will take possession of at least five wide-bodied Airbus aircraft (around the end of 2007), Mallya confidently predicted that by then he would have received permission to start an airline from the United States to India which would ensure that the new wide-bodied planes are in service.
He was also confident that the Indian government will relax eligibility criteria thus permitting Kingfisher Airlines to fly abroad from India.
In conclusion, he said “As far as Kingfisher Airlines is concerned I’m extremely confident it’s going to be one of the most successful ventures of the UB Group. The product is already voted the best in the sky. The yields are good and moving up. The load factors are good.”
Mallya was also asked about his membership of the Parliamentary Consultative Committee on Civil Aviation and asked whether this was a conflict of interest. Kingfisher Airlines has a maintenance and ground-handling contract with Indian Airlines and uses the national carrier’s terminals in Bombay and Delhi.
“There’s certainly no conflict of interest. I’m paying Indian Airlines more than 60 crore a year, which, in the admission of the Chairman and Managing Director of the Airlines, is a very significant sum of money … I’ve given Indian Airlines a fantastic deal. And as far as the terminals are concerned, these terminals are not Indian Airlines terminals, particularly now after the airport privatisation has taken place … (Also) I actually pay Indian Airlines a hell of lot more to handle my aircraft than if I did it myself,” he said.
Mallya was also questioned about his lifestyle and asked if a man who wears diamond watches and bracelets, has houses in Singapore, South Africa, London, New York and San Francisco as well as Goa, Bombay, Delhi and Bangalore, private yachts and private planes, and once valued his company at $5 billion could represent a state (Karnataka) where over 20 per cent of the people live below the poverty line and where 8,600 farmers have committed suicide in the last five years.
In a combative reply he said his lifestyle was “none of their business”. He also added that he was spending his own money and insisted, “There is no point in being a hypocrite”.
“First and foremost I’m not going to accept that the media must form an opinion about how I live and how I do things. It’s none of their business. The second thing is I live the way I live out of choice, not out of compulsion. And I spend my own money, not other people’s money. There’s no point in being a hypocrite and I will not be a hypocrite. I sympathise with those who are under-privileged.”
“I sympathise with those who have committed suicide and my heart goes out to them and the problems they are facing. But that does not mean that I should turn hypocritical and say because, unfortunately, we have poverty in our country I should not live the way I do. I don’t think any one suggests that personal standards of living should be consistent with what you see around you. May be some politicians choose to play the game that way but I’m certainly not going to do it,” he said.
“I’m the first one to contribute to any social causes that would help alleviate the suffering. But it’s not a job one can do single-handedly,” Mallya added.
Finally, when asked if he would stand for re-election after his present term in the Rajya Sabha expires in 2008, Mallya revealed that he definitely would and added he had offers of support from many political parties: “Certainly I’m going to continue and I have offers which suggest that many political parties would like to see me back in the Rajya Sabha after my term.”
Comments
0 comment