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Tuesday, February 26, 2013

Mindless Panic: Kingfisher Airlines Ltd
~~Suman Mukhopadhyay
Kingfisher Airlines has been grounded since 1 October 2012, first because of staff protests against unpaid salaries and thereafter because of regulatory issues. Its flying license expired on 31 December 2012, although that can be revived through a re-application. Recently, there were were some media reports that the Minister of Civil Aviation, Mr. Ajit Singh has decided to withdraw all International Bilateral Traffic Rights allocated to Kingfisher Airlines with immediate effect. Under the International Bilateral Traffic Rights, Kingfisher Airlines was allowed to fly the sky of 8 countries namely Bangladesh (14 services per week), Hong Kong (14 services per week), Nepal (7 services per week), Singapore (7 services per week), SriLanka (14 services per week plus 21 services per week from unlimited 18 destinations), Thailand (21 services per week), UAE Dubai (21 services per week) and UK (7 services per week each from Mumbai, Delhi and Bangalore). These international traffic rights have been withdrawn from Kingfisher Airlines on account of non-utilisation by the airline, the aviation ministry said. The Civil Aviation Minister has decided to make these international traffic rights available to other carriers for use. This would give additional availability of approximately 25,000 seats per week for use by other Indian carriers to these 8 countries, some of which are much in demand by these carriers, the aviation ministry said.
The domestic flight slots of the airline at various airports will also be allocated to other carriers by the state-owned Airports Authority of India (AAI). This bit of news has somewhat pressed the panic button in the minds of the investors. Let us examine the issue briefly. 
(i) In this context it is pertinent to mention that Kingfisher Airline Ltd’s operating license was suspended last year (2012) by aviation regulator DGCA and its license subsequently expired in December, 2012. Kingfisher has so far been unable to convince the DGCA to renew its licence. Hence, when there is no license to fly, does it make any sense to keep those seats vacant and create loss to the National Exchequer, especially when the other players are ready to utilize them? Hence, it is natural for the government who is trying to plug, fiscal revenues, will go for this cosmetic change. Isn't it? Is it therefore, a major issue for Kingfisher Airlines Ltd?
(ii) It is to be understood, who actually calls the shots in Kingfisher Airlines Ltd. It is controlled by liquor baron and the MP (Member of Parliament), Dr.Vijay Mallya and was once India’s second biggest carrier; till it stopped flowing since 1st October,  2012, precisely due to cash crunch and mis-management. Kingfisher Airlines flew to eight countries including Bangladesh, Hong Kong, Nepal, Singapore, Sri Lanka, Thailand, Dubai in the United Arab Emirates and the UK. These traffic rights were allocated to the firm between 2008 and 2011. Hence, there is no problem in the brand name and the credibility of the company. Isn't it? What is now needed is only fund infusion and rejig the working process (modus--operandi). 
(iii) Meanwhile, in a surprise move, a week after its lenders decided to recover their dues, cash-strapped Kingfisher Airlines started paying salaries to its employees apart from approaching the aviation regulator seeking license renewal. It is to be noted that, the airline has not been paying salary to its employees since May, 2012, while it had started delaying salaries much before the crisis broke out last October. Moreover, there are still lot of media speculations, that the Chief Executive Sanjay Agarwal, is being in constant touch with Directorate General of Civil Aviation (DGCA) to resume operations. These are all welcome moves and points towards starting of operations at the earliest. 
(iv)  Earlier its group company, U B (Holdings) Ltd had decided to revise the lending limit for Kingfisher and to authorize its board of directors to take necessary actions in this regard. "To accommodate further lending to Kingfisher if required, it is proposed to realign these limits further by increasing the lending limit to KFA from Rs.300 Cr to Rs.750 Cr and reducing the investment limit from Rs.1,200 Cr to Rs.750 Cr, thus maintaining the overall limit of Rs.1,500 Cr" UB Holdings Ltd, said in  a press note. Hence, it is now given that the airlines is making all the necessary moves to put its wings, once again and this time probably in a more kaleidoscopic note. 
(v) The State-run Airports Authority of India (AAI) had already warned Kingfisher Airlines that it would start taking away space allotted to the troubled airline at airports across the country if it failed to submit a “functional” revival plan by mid-January, 2013. Hence, this move by the AAI is just an extension to what it said some time back. So, does it in anyway surprise the market? On the contrary, it never said, that it would not allow the troubled airlines to reach the sky from India shores. Isn't it? The move was expected since other airlines might have put pressure on the ministry to free up the international and domestic slots of now defunct  Kingfisher Airlines Ltd. Also, it is now in a situation, where it has to cross several financial hurdles before it can ponder over the issue of slots. So, does it make any sense, if the government continues to hold back those slots and deprive the other players of exploiting them to the hilt? 
It is widely speculated that, Dr.Vijay Mallya will probably start resuscitating the airlines, after the Diageo-USL deal is cleared by the authorities. It is important to mention here that, Diageo Plc, the world’s largest liquor company, is all set to acquire 53.4% of United Spirits Ltd (USL), a  group company of the, Dr.Vijay Mallya controlled, UB Group. It agreed to purchase a 27.4% stake in USL, including 19.3% from UB group chairman Mallya, for £660 million (around Rs.5,398 Cr) and fresh equity from the firm; the remaining stake would be bought in an open offer to public shareholders. The deal is awaiting final clearance from Competition Commission of India, though SEBI has given conditional clearance, according to some media inputs. According to The Guardian, Diageo Plc officials were a part of the recent business delegation, led by the British Prime Minister, Mr.David Cameron  in India. It would not be an exaggeration to mention here that, Mr.David Cameron was accompanied by more than 100 representatives from multinationals, SMEs and universities, as well as parliamentarians. This is the largest trade delegation ever taken by a British prime minister to any country in the world---this raises lot of hopes of getting the epoch making deal, cleared soon.
On the other hand, the 17-bank consortium, which has an aggregate exposure of about Rs.7,000 crore to Kingfisher Airlines Ltd (KFA Ltd), is believed to be explicitly supporting the transaction with Diageo and might work with the latter (KFA Ltd) in finding an orderly method of disposal of some of the pledged shares to Diageo, if appropriate. Besides,  it has been in the news that, Bankers are quite hopeful that KFA Ltd's employee issues will also get resolved in due course of time. The banks, is understood, to be probably taking up recovery proceedings as the last resort, because, it is unlikely that any sizeable amount would get salvaged, if bankers were to initiate recovery action today. Also, with Kingfisher Airlines Ltd grounded, the brand value of the airline has also taken a hit---the UPA government would also not like that to happen, specially, post FDI in aviation was cleared. All these points to a wider game-plan of starting the operations of KFA Ltd.
Now, once it has adequate funds, and get the NOCs (no-objection certificates) from respective authorities, it can again apply for these slots. If the slots are available at that time, KFA Ltd can  avail of them; if not, then some solution can be arrived at, especially for the domestic slots. International slots might be thought of at later stages. Now the 1st priority for the beleaguered airlines is to restart of domestic and then give stress to its expansion, in the international skies. 
Conclusion: Keep adding the shares of KFA Ltd (CMP: Rs.10.74) in all declines and wait for the "Grand Finale"----the day, when the KFA Ltd will soar up higher and higher towards Heavens,  and swim in the azure blue sky. 
Disclosure: My family (I do not have any personal holding) has some holdings in the shares of Kingfisher Airlines Ltd. Hence, naturally I might have some interest in the company.