Kingfisher vs Jet : Bankers cannot escape blame for the bad-loan mess at Kingfisher Airlines. Why did they fund Vijay Mallya’s never financially solvent airline? Kingfisher’s gross block (investment in fixed assets) was always a fraction of its total debt and the gap widened with each passing year (see chart). Thus, the banks never had the option to sell its assets and recover their dues in a default. Compare it to the amount of documentation and collateral that banks ask from individual borrowers. Beside, the airline reported operating profit only once (a meagre Rs 33 crore in FY11) since it began operations in 2005. It depended on new borrowing to service past debt, including interest payments. In essence, bankers were throwing good money after bad. Competitors were treated differently. Jet Airways’ gross block always exceeded its debt liabilities, providing full coverage to bank loans. Jet reported operating loss only twice in the past 15 years — it never had to borrow to service past debt. To keep Kingfisher in good health, the lenders in 2010 had asked the RBI to allow restructuring Rs 2,000 crore of loans. RBI said No; a single airline couldn’t be given special treatment. Following which, banks petitioned RBI for a special dispensation to the entire sector. In sum, Kingfisher didn’t have the financials to merit a bank loan in the first place. Yet, the banks still funded it for a decade, till the entire scheme imploded in late 2012, due to high oil prices and economic slowdown. From the start of 2011-12, banks started asking Kingfisher to repay the debt and finally decided to invoke personal guarantees by the end of 2012.

Kingfisher vs Jet : Bankers cannot escape blame for the bad-loan mess at Kingfisher Airlines. Why did they fund Vijay Mallya’s never financially solvent airline?

Kingfisher’s gross block (investment in fixed assets) was always a fraction of its total debt and the gap widened with each passing year (see chart). Thus, the banks never had the option to sell its assets and recover their dues in a default. Compare it to the amount of documentation and collateral that banks ask from individual borrowers.

Beside, the airline reported operating profit only once (a meagre Rs 33 crore in FY11) since it began operations in 2005. It depended on new borrowing to service past debt, including interest payments. In essence, bankers were throwing good money after bad. Competitors were treated differently. Jet Airways’ gross block always exceeded its debt liabilities, providing full coverage to bank loans. Jet reported operating loss only twice in the past 15 years — it never had to borrow to service past debt.

To keep Kingfisher in good health, the lenders in 2010 had asked the RBI to allow restructuring Rs 2,000 crore of loans. RBI said No; a single airline couldn’t be given special treatment. Following which, banks petitioned RBI for a special dispensation to the entire sector.

In sum, Kingfisher didn’t have the financials to merit a bank loan in the first place. Yet, the banks still funded it for a decade, till the entire scheme imploded in late 2012, due to high oil prices and economic slowdown.

From the start of 2011-12, banks started asking Kingfisher to repay the debt and finally decided to invoke personal guarantees by the end of 2012.

Advertisements
Kingfisher vs Jet : Bankers cannot escape blame for the bad-loan mess at Kingfisher Airlines. Why did they fund Vijay Mallya’s never financially solvent airline? Kingfisher’s gross block (investment in fixed assets) was always a fraction of its total debt and the gap widened with each passing year (see chart). Thus, the banks never had the option to sell its assets and recover their dues in a default. Compare it to the amount of documentation and collateral that banks ask from individual borrowers. Beside, the airline reported operating profit only once (a meagre Rs 33 crore in FY11) since it began operations in 2005. It depended on new borrowing to service past debt, including interest payments. In essence, bankers were throwing good money after bad. Competitors were treated differently. Jet Airways’ gross block always exceeded its debt liabilities, providing full coverage to bank loans. Jet reported operating loss only twice in the past 15 years — it never had to borrow to service past debt. To keep Kingfisher in good health, the lenders in 2010 had asked the RBI to allow restructuring Rs 2,000 crore of loans. RBI said No; a single airline couldn’t be given special treatment. Following which, banks petitioned RBI for a special dispensation to the entire sector. In sum, Kingfisher didn’t have the financials to merit a bank loan in the first place. Yet, the banks still funded it for a decade, till the entire scheme imploded in late 2012, due to high oil prices and economic slowdown. From the start of 2011-12, banks started asking Kingfisher to repay the debt and finally decided to invoke personal guarantees by the end of 2012.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s