1 Dec 2011

Airlines hijack India, Banks hold-up taxpayers

According to a Frontline article, "(Kingfisher Airlines) has not paid to the government Rs.410 crore collected by way of taxes deducted from the employees' salaries. It has defaulted on the payment of salaries and taxi, airport landing and parking, catering and aviation turbine fuel bills. On November 14, the company posted its 16th straight quarterly loss."

Last year in a deal with creditors, Kingfisher managed to magically 'restructured' Rs.1300 crore of debt into shares worth 62% over the prevailing market rate. The value per share has since fallen from nearly Rs.65 to around Rs.20!

The deal, something of a stroke of financial genius on part of the consortiunm of 13 creditors, was achieved under the stewardship of the venerable State Bank of India (SBI), the country's largest bank.

A year later, SBI proudly informs us that it now has Rs.1400 crore exposure to Kingfisher Airlines - which is Rs.100 crore MORE than the previous year's entire 'restructured' debt!

But the bank isn't the least bit disconcerted. No siree!

Because SBI isn't alone... "Non-performing assets, or bad loans, of banks in India are set to triple by March 2014, according to the latest report by CLSA." And according to the same article on FirstPost, "the corporate sector accounts for 70% of bank credit." Must be a coincidence, eh?

Pratip Chaudhuri, Chairman of SBI, cooly notes (in video below) that Moody's which recently downgraded his bank's rating (presumably because of dubious 'assets' like its equity in an airline that has NEVER made a profit!) also said that, "SBI is assured of the continuous support of the sovereign."

In English, it simply means "taxpayer-sponsored bailout." You see, they are just Too-Big-To-Fail.

(Apparently, SBI overall is rated Baa2 by Moody's, while India (SBI's 60% owner) is rated a notch BELOW them at Baa3! I guess, the magical world of finance is beyond the scope of concepts as mundane as logic.)

The Frontline article also quotes a report by Toronto-based Veritas Investment Research Corp. that Vijay Mallya's UB Group had "provided bank guarantees totalling Rs.16,000 crore, according to some reports, to Kingfisher Airlines' debt, far beyond its own marketable assets, thereby rendering both companies insolvent." It is amazing that no creditor considered this possibility?

But while Kingfisher Airlines has raked up debts of Rs.12,668 crore, and cancelled 175 out of 418 flights alloted to it for the current winter holiday season, the company's Chief Optimist and CEO, Sanjay Aggarwal, wrote "there is no risk to the long term future of the airline" in an email meant to stem the haemorrhaging of pilots and other employees.

But Kingfisher Airlines isn't overly perturbed either!

Because they are only the visible part of the iceberg... According to a LiveMint article, the entire Indian aviation industry is headed for a crash landing!!!

Collectively, the five leading domestic airlines — Jet Airways​ (India) Ltd and its unit JetLite (India) Ltd, Kingfisher Airlines​ Ltd, state-owned Air India​ Ltd and SpiceJet Ltd—are weighed down by Rs.84,058 crore of liabilities.

State-run Air India has a total debt of Rs.48,000 crore, Jet Airways Rs.19,602 crore, JetLite Rs.2,197 crore, Kingfisher Airlines Rs.12,668 crore, and SpiceJet Rs.1,591 crore.

(Try to pick a flight-path around this unholy skyline...)

So what do India's intrepid aviators do? Why, of course, the aggrieved jet-setters troop off to the Prime Minister's office... Jet Airways' Naresh Goyal (Chairman), Indigo's Rahul Bhatia (Promoter), IndiGo's Aditya Ghosh (CEO), SpiceJet's Neil Mills (CEO), Kingfisher's Sanjay Aggarwal (CEO), and Go Air's Jeh Wadia (owner), met Manmohan Singh over a cuppa Assam or Scotlands finest to seek government 'invervention'!

In plain English, it means "taxpayer-funded bailout." They too are Too-Big-To-Fail.

There are ultimately only two possibilities before India:
1) The Indian government intervenes, with a disasterous inflationary consequence, or
2) The Indian government does not intervene, allowing all the loss-making airlines and the over-leveraged banks to collapse, with disasterous deflationary consequences.

India's 'Lehman Moment' is looming large like a wide-body attaining terminal velocity... Whether it is direct incentives, tax-cuts, subsidies, or Foreign Direct Investments (FDIs), it is either lost income or new expense, both of which will be offset by taxing the aam aadmi!

India is primarily a domestic demand-driven economy, with consumer spending accounting for nearly 60% of the economy by expenditure. The current slowdown in India's GDP growth signals an ominous trend: Rapidly falling domestic spending!

And the less Indians spend, the lower the profits for India Inc. And in times when companies are stuffed to their gills in debt, it means losses that can threaten lenders who happily leveraged their capital up to 14 times and hold worthless IOUs as collateral!

But why is the aam aadmi tightening his purse strings? I suppose he is just tired...

Tired of the false promises. The 'economic superpower' lie. The uncertain global economic climate. The high cost-of-living. The falling value of their savings. Their cities falling apart at the seams and rotting at its heart. The erosion of traditional Indian family values. The consequent decadence in society. The frivolity in the mainstream media. The naked cronyism in the corporate world. The nepotism of epic proportions in government. And the complete failure of virtually ANY authority figure to set an example.

The aam aadmi knows he's Too-Small-To-Matter.

He know that nobody gives a rodent's rear-end if he swings from the end of a rope because he failed his family. What he might not know, however, is that there are roughly one billion and three hundred million others who feel just like he does... Right now!

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