The public indignation on Kingfisher Airlines asking for a bailout is unwarranted. Newspapers, blog sites, comments on the net etc. are all about why the airlines should not be bailed out. Let the market do its work, they say. Many have become personal bringing the man behind Kingfisher Airlines, Vijay Mallya’s flamboyant lifestyle into focus. Kingfisher Airlines is deep in the red and does not have money to pay for aircraft fuel and even its own staff and has cancelled flights due to the cash crunch. The company has approached the aviation ministry for help and this is causing the public outcry.
The market has punished kingfisher. The market capitalisation of the company is down 78% over the last one year and its shareholders have suffered for being invested in the company. Its lenders including large banks such as SBI and ICICI Bank are assessing the impact of Kingfisher going bankrupt on their balance sheets and by all indications the impact is very minimal at less than 0.15% of total assets. The company can well close down operations and declare bankruptcy and no one will be the worse for it except the passengers who have booked on their flights and will have to pay higher airfare to rebook in other airlines. Kingfisher’s employees too will suffer as they will lose jobs and will not be paid their dues.
The question is why should Kingfisher not be bailed out? India and the world are living in an era of bailouts. Indian bailed out many sectors hit hard by the market collapse in 2008 including the financial sector. The EU (European Union) is bailing out Greece, Ireland and Portugal as these countries are sinking under debts. The US bailed out banks and investment banks as well as automakers in 2008. The UK bailed out banks and mortgage lenders in 2008.
Kingfisher will be right in feeling that it’s being made a scapegoat when everyone has been bailed out. Banks are continuously restructuring loans either of their own free will or on pressure from politicians. The RBI will never let any bank fail in this country as seen in the case of GTB (Global Trust Bank). Satyam computers, when it declared its fraud was not left to sink. The government got involved and made sure that it got taken over.
If the government does not bailout Kingfisher then it should have a clear cut policy of not bailing out any other company that is in trouble. Then letting Kingfisher die will make sense. However letting kingfisher die and then bailing out the next company in trouble that has close political connections will then have the public fuming.
Yes, bailouts are morally wrong in a free enterprise economy, but are economies really fully let to take its own course. Of course not.