Bailout v/s bankruptcy- Which one is better?
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In more recent times, there has been a lot of hoopla about whether Kingfisher Airlines, which is facing a serious cash crunch, should be bailed out or not. Of course, we believe that market forces should decide whether a business should survive or shut down. After all, bailing out a business means using public money to save a private enterprise. Society cannot operate on the principle of privatised profits and socialised losses. Moreover, bailouts send out the wrong signals. They incentivise businesses to be reckless, that no matter what they do, the government is always going to come to their rescue. Of course, there is no denying that there can be times when bailouts may be necessary. But they should be reserved only for such rare cases wherein there is a threat of a system-wide collapse.
Going back to the case of Kingfisher Airlines, another question that arises is whether the airline company is right in asking for a bailout. We don't think so. The simple reason being that tomorrow if the company were to make record profits, will it be willing to share those with the taxpayer? Certainly not! How then can it expect to be bailed out using the very same taxpayer's money? Nevertheless, there is a section of society out there that favours a bailout of the embattled firm. For us though, the choice has been clear right from day one. Please do not get us wrong. We are not against the firm and we believe that Kingfisher Airlines is one of the better airlines around. But we have issues with any firm being bailed out. As the developed world has shown, a bailout only amounts to kicking the can down the road and does not solve the real problem. Thus, for a full blown recovery, either a restructuring or a complete elimination of the issue at hand is required.
According to you, should failing businesses be bailed out or allowed to go bankrupt? Share your comments with us or post your views on Facebook page / Google+ page.
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Data source: Business Standard *Figure upto September, 2011 |
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The per-capita expenditure in rural market is half that of the urban market. But with 150 million households, rural India is nearly three times bigger than urban India holding immense potential demand. Nielsen has forecasted rural FMCG sales to leapfrog from the current US$ 12 bn to US$ 100 bn by 2025. As per the research agency, factors such as higher demand for premium products, brand consciousness and shift from occasional to regular consumption will be the future demand drivers in rural India. FMCG companies have been scrambling to grab a share of the growing clout of rural India. But companies such Hindustan Unilever Ltd (HUL) and ITC Ltd which have developed a strong rural network have a distinct advantage.
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35 Responses to "Bailout v/s bankruptcy- Which one is better?"
Bankim
Nov 16, 2011Surely agreeing with u as no bailout should be given to any of the firm let it be any private firm or public firm. As it creates the situation where all will have the tendency to survive themselves without taking care of how the firm will survive. This creates the selfishness among all which is not good for society as tax payers money can not be wasted for bailout. If any one is dying & there is no hope for his recovery we also with utmost attachment also with brave heart take the decision to let him die same approach should be made applicable in case of firm & companies.
Even a layman running a business knows the breakeven he will achieve in particular time & if he does not he will have to rethink of his business & will have to stop doing the same business does Government of any country helps him bailing out then why any company.
Only the Bankruptcy will create the more efficient company due to the end point of reaching in case of failure.
Alok Nigam
Nov 16, 2011Was KFA not aware of Air India or concept of Level Playing Field when they ventured into this business? It would be more appropriate and appreciated if KFA Management was to accept their mistakes in misreading the Competition and Customer and their Business Strategy rather than now blame it on all other factor's except 'MISMANAGEMENT'. What is the guarantee that you will not be in same spot again. Sorry Mr Mallya you got to get your house in order first.If you or your Team did not see it coming then you must take the blame for it now. No comment on the PM statement in your support.
manoharkantak
Nov 16, 2011Bailout v/s bankruptcy given the choice bankruptcy is a preferred one even the Government of India must adapt to bankruptcy for its own PSU's. There are many advantages, 1) The employees will put serious efforts to save the organisation from making losses.2) Taxpayers money will be used for better purposes. 3) Tax rates will come down. 4) People will willingly pay taxes hence tax evasion will be less. 5) Government will get more money to put for better use. 6) Restructuring is a good system but it depends on the integrity and capability of the management. It has its own merits and demerits. In case of Kingfisher it will not work. Better they make their own arrangement.
saby chacko
Nov 16, 2011The agencies doing the market survey is always wrong with regard to consumption pattern of rural and urban people of Kerala state in india.There is hadly any difference between urban area and rural area in most parts of Kerala! I suppose only Hindustan lever is the only company sensible enough to market their products wisely in kerala. Rest of all the companies in India are a laggard in this case, they hadly understand the realities of the sytem in state, the consumption pattern of the people in this state, etc.
N VISWANATHAM
Nov 16, 2011Bankruptcy is better. The airline should not be bailed out. If the present management is incapable of managing the business properly, let them put it on the block let a better credible management take over the business.
Viswanatham
sethu
Nov 16, 2011kingfisher should be allowed to die.no bail out.I agree with your write up on this issue.
sunilkumar tejwani
Nov 16, 2011it is very easy for a the mighty and rich to get bailout packages at the drop of a hat. As is well known the political connections of promoters of Kingfisher Airlines,
the self serving politicians are likely to oblige. "cause their very own survival hinges on the election funding of the rich and elite. Shame on such poor governance.
NR MAHALINGAM
Nov 16, 2011If there is a company that doesn't deserve any help from tax payer. its King Fisher, full of sosha than performance.
Deepak
Nov 16, 2011I m not against bail out or Kingfisher, but if we will give such support to kingfisher now then in future some other company may ask such support.At that time you can't neglect them too. in this way our money (tax payers money)is not used for our own necessity.