Explained: How Kingfisher Airlines put Vijay Mallya in debt
UK has agreed to extradite the former liquor baron.
When Vijay Mallya launched Kingfisher Airlines in May 2005, there was a lot of anticipation. The flamboyant billionaire and liquor baron, known as the "king of good times", had a reputation to envy. True to form, he made a splash, making Kingfisher Airlines a luxury airliner with lavish facilities. It was also the first Indian carrier to place orders for Airbus A380 and A350 planes.
But the airline struggled to stay afloat, running up huge losses and debts. Mallya left the country overnight without repaying those debts.
The Indian government then started the process to extradite him. After a lengthy trial, British home secretary Sajid Javid has signed an order in favour of his extradition on February 3.
Here is the detailed account of how Mallya fell from grace.
The failure of Kingfisher Airlines
Mallya's financial problems started with the collapse of Kingfisher Airlines. In June 2008, he bought Air Deccan, an airline which was bleeding money, a move widely believed to have caused Kingfisher's collapse. He merged Kingfisher Airlines with Deccan Aviation Ltd and changed the brand name of Air Deccan first to Simplifly Deccan and later, Kingfisher Red. This ended up increasing the airline’s liabilities.
The financial crisis of 2007-08 and the rising crude oil prices were disastrous for Kingfisher Airlines. Mallya also made a series of bad business decisions. To begin with, as many have opined widely, there was no reason for Mallya to enter the aviation industry in the first place. The industry has always been notorious for large overhead costs, lesser returns, and coupled with a moribund government taxation system, leading to huge losses.
In all its eight years of operations, Kingfisher Airlines dominated the conversations, but earned no profit. On top of it, with an eye on flying overseas, Mallya bought Air Deccan, without taking as much as a second look at the latter's account books. The liability that Air Deccan brought, stressed the struggling Kingfisher further.
All these factors led to the collapse of Kingfisher. By 2009-10, Kingfisher Airlines had amassed a debt of Rs 7,000 crores, and was declared as a “non-performing asset”. By 2012, it was grounded and its employees went unpaid. The company had not even paid employees' provident fund to the tune of Rs 4,000 crores.
In 2013, a consortium of 14 banks, led by State Bank of India, asked United Breweries – the parent company of Kingfisher and Mallya’s main business – for payments. They got a guarantee from Mallya that UK-based Diageo Group would be buying a stake in United Spirits, another company of Mallya's, for Rs 2,400 crores, which would be used to pay off the debt.
However, Mallya took that money and left India for the UK before the banks could approach the court to stop him, aided by the fact that a lookout notice issued on him was changed at the last instance, from “detain” to “only inquire”.
Following public outcry, the Indian government started proceedings to extradite Mallya back to India. After a long trial, a magistrate court ruled in favour of the Indian government and sent it to UK home secretary Sajid Javid in December 2018. After some deliberation, Javid gave his approval on February 3. But the matter is far from over.
Under British law, Mallya can appeal against the decision in a higher court which could in turn lead to another long legal battle.
Mallya has already declared he will appeal against the decision. He has alleged that there is a witch hunt against him and there is no interest in settling the matter.
According to Mallya, he has repeatedly offered to pay off the debt but they have not been taken up. He further maintains that he did not flee India and he is not a fugitive. He said that he has not returned so far because he was put on a “media trial” and will not get a fair deal in this present climate.
Furthermore, he has also maintained that Arthur Road Jail, where he is likely to be incarcerated, is unsuitable with poor living conditions.
Mallya’s extradition has major political ramifications. If India is successful, it would be seen as a big moral victory for Prime Minister Narendra Modi and his self-proclaimed fight against corruption, especially when Mallya's flight occurred under the PM's watch. Given that elections are due in a couple of months, it will bolster his image.