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Friday, March 02, 2012

Kingfisher crisis vs Satyam scandal comparison

We all know the Kingfisher crisis and the airline is expecting funding from its bankers/investors to stay afloat. While many will be happy to see the airline close, there’re few who expect Govt support to ailing airline, directly or indirectly.They compare Kingfisher crisis to Satyam scandal.

Because I was part of Satyam saga and am observing kingfisher episode, I would like to compare the two

Some key differences:
Satyam’s founder admitted to massive accounting fraud. But company had some cash flow, accounts receivable and because of this new management managed to pay salaries, vendors and creditors. Share holders were the only affected people. Employees got their salary and found other jobs eventually. In case of kingfisher, it owes to everyone- employees, vendors, oil companies, airports, government and so on. Liquidity is near zero and fresh cash flows are fast dwindling due to flight cancellations and consumer preferences on other airlines

Satyam’s new board took management control of Satyam, held it in one piece till they could sell it off to Mahindras. In case of kingfisher, there’s no talk of management control. The proposal is that banks give it more and more loan-without any concrete plan as to where it will go and how it will be recovered. Corporate Debt restructuring appears to be a big joke wherein lenders try to show their loan as an “Asset”, while the truth being, it is an almost write-off.
 kingfisher-plane-parts
Satyam’s founder went to Jail. In case of Kingfisher, would the Mallya and other KF Sr management dare to face an enquiry/prosecution or bad corporate governance?

Satyam being an IT Company- All IT companies were making profit and business Satyam owned (IT outsourcing projects) had good value proposition and chances of being turned around. In case of Kingfisher, airline industry as such is deemed to be an white elephant, with returns taking forever to materialize. What makes more sense: accept the losses and close or pump in more money in expectation of a miracle?

Satyam scandal was abrupt. One fine morning (Jan 7, 2009) Ramalinga Raju decided that he’ll declare the truth. Rest of the world learnt about it only then. In case of Kingfisher, the loses were evident from the beginning. Everyone knew that airline is not making money and its financial health is not great. If some of the bankers had the guts to step in an year earlier and put pressure on airline management, today’s crisis could have been avoided.
 Rangoli-kingfisher-1kingfisher-rangoli2-i
The Art of Borrowing: 
Typical Indian mentality is that borrowing is bad. We should try to save as much as possible and spend the saving, instead of taking loans. But business sense reveals otherwise. Borrowing helps corporate privatize profits and socialize loses. Read this really interesting article, which explains what would happen if Kingfisher shuts down: For every rupee Vijay Mallya loses, tax payers (via various govt companies and bonds) lose Rs 14. So what should be done? Option 1: Let go of taxpayer’s 14 rupee and close the airline and feel happy we took revenge against Vijay Mallya? (Mallya would have already got several times the worth of his Re 1) Or Option 2: Oust the Mallya, take up management control, sell it to some entity and try to recover some part of this Rs 14?. I think the second option is better.

3 comments :

shirin goel said...

ultimate….
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The wild said...

You cant compare apples and oranges ,there is a detailed process for a company going bankrupt ,there is debt recovery tribunal which handles those cases

Kingfisher got it royally wrong but thats a different story which i will detail someother time,but in general the aviation industry has too many operational expenses which is dooming the the indian aviation industry

Shrinidhi Hande said...

Agree