That the Kingfisher Airlines is in deep trouble is a known fact. Bloating debt, rising fuel prices and increasing competition has seen the airline bleed in the recent past. The only hope left for the company is easing foreign direct investment (FDI) norms in local carriers. This would enable much needed cash infusion and bail out the troubled airline .
Well, it is true that the entire aviation industry is going through tough times. But most of the airlines in India, though unprofitable, are not in dire need of funds. So, while the FDI policy will ease liquidity issues in general the immediate beneficiary happens to be Kingfisher. As a result, there is a speculation in the market that Mr Mallya could well be manipulating the current situation to his own advantage. Labeling that the current state of the company is more due to policy issues rather than management extravagance/incompetence may well put the government under pressure to clear the FDI guidelines.
But we believe that the manipulation saga does not have any substance to buckle the government. First, if the policy issues are creating havoc for the company why are the other airlines like Indigo and Go Air doing relatively well? Second, does Mr Mallya really have the muscle to arm twist government policies for his own advantage? True, that FDI in aviation will benefit the entire industry. But remember that it is Kingfisher who is in desperate need of funds now.
So, contrary to market beliefs we believe that Kingfisher does not have the mettle to put government under pressure. True, that it can play the media to its advantage but it is not necessary that the government would lend an ear to it.
Lastly, it may be noted that the working condition of the company has improved in the recent past. It has paid its pending employee dues. Tax authorities have unfrozen its accounts. And it has also a given satisfactory response to the department general of civil aviation (DGCA) over why its licence should not be cancelled. However, its long term fortunes are sailing over the FDI policy. Even if the government gives a nod to the policy management's capital allocation decisions will play an important role in its survival. And going by the past, those decisions are nothing to cheer about.