NEW DELHI: As Kingfisher Airlines careens toward collapse, the Indian government finds itself between a rock and a hard place.
The government, already weakened by a string of corruption scandals over the past year, will face further political heat if it tries to rescue a money-losing private carrier - especially one owned by a flamboyant liquor baron.
If it lets Vijay Mallya's airline fail, however, the government will hurt state-run banks, which own about a fifth of Kingfisher's shares and three-quarters of its $1.3 billion debt.
Kingfisher is struggling with fewer flights and pilots, staff demoralised by unpaid salaries, and outstanding dues to aircraft lessors, oil companies, airports and tax authorities.
It needs at least $400 million quickly to keep flying, figures Centre for Asia Pacific Aviation (CAPA), a consultancy . Mallya's plans to raise funds through a share sale have been stalled and he has been lobbying the government to get state-run banks to lend more.
The fast clip at which the government has moved to change regulations in the past two months - airlines can now directly import fuel, lowering their costs, and private carriers can fly overseas more - has lifted expectations that Mallya may eventually win the help he needs from the government.
"India: Kingfisher's national carrier," one Tweeter quipped last week.
A government bailout for a private carrier would not go down well with the public in India, where airlines are still not the common man's preferred mode of travel. Conscious of that, the government insists it is not looking to bail Kingfisher out.
Mallya avoids the bailout word too and, instead, says he is only asking for more working capital, which Aviation Minister Ajit Singh says is up to the banks to decide on.
However, late last year Prime Minister Manmohan Singh spoke of finding ways to help Kingfisher, which has led many to believe that in the end the government will come to its rescue.
"Is the government being duplicitous about its stand on the increasingly distressed Kingfisher Airlines?" the daily Business Standard wrote in an editorial, advocating no more funds from state banks for a carrier that wasn't 'too big to fail'.
Saving a private airline would be risky for Singh's government, which has faced pressure from allies, political opponents and civil activists for more than a year over graft.
"After all the charges of crony capitalism ... if the government rolls out the red carpet for Kingfisher, it will once again come under attack," said Paranjoy Guha Thakurta, a political analyst.
Mallya, whose liquor business clout helped win him a seat in the upper house of parliament two years ago, could use his political ties to save the carrier he started in 2005.
Allowing foreign carriers to buy a stake in Indian carriers is probably the key policy step Kingfisher desperately wants the government to take. Unlike in 2007, when ailing airlines were bought over by Kingfisher and Jet Airways, there are no domestic carriers circling to buy up rivals today.
The government, already weakened by a string of corruption scandals over the past year, will face further political heat if it tries to rescue a money-losing private carrier - especially one owned by a flamboyant liquor baron.
If it lets Vijay Mallya's airline fail, however, the government will hurt state-run banks, which own about a fifth of Kingfisher's shares and three-quarters of its $1.3 billion debt.
Kingfisher is struggling with fewer flights and pilots, staff demoralised by unpaid salaries, and outstanding dues to aircraft lessors, oil companies, airports and tax authorities.
It needs at least $400 million quickly to keep flying, figures Centre for Asia Pacific Aviation (CAPA), a consultancy . Mallya's plans to raise funds through a share sale have been stalled and he has been lobbying the government to get state-run banks to lend more.
The fast clip at which the government has moved to change regulations in the past two months - airlines can now directly import fuel, lowering their costs, and private carriers can fly overseas more - has lifted expectations that Mallya may eventually win the help he needs from the government.
"India: Kingfisher's national carrier," one Tweeter quipped last week.
A government bailout for a private carrier would not go down well with the public in India, where airlines are still not the common man's preferred mode of travel. Conscious of that, the government insists it is not looking to bail Kingfisher out.
Mallya avoids the bailout word too and, instead, says he is only asking for more working capital, which Aviation Minister Ajit Singh says is up to the banks to decide on.
However, late last year Prime Minister Manmohan Singh spoke of finding ways to help Kingfisher, which has led many to believe that in the end the government will come to its rescue.
"Is the government being duplicitous about its stand on the increasingly distressed Kingfisher Airlines?" the daily Business Standard wrote in an editorial, advocating no more funds from state banks for a carrier that wasn't 'too big to fail'.
Saving a private airline would be risky for Singh's government, which has faced pressure from allies, political opponents and civil activists for more than a year over graft.
"After all the charges of crony capitalism ... if the government rolls out the red carpet for Kingfisher, it will once again come under attack," said Paranjoy Guha Thakurta, a political analyst.
Mallya, whose liquor business clout helped win him a seat in the upper house of parliament two years ago, could use his political ties to save the carrier he started in 2005.
Allowing foreign carriers to buy a stake in Indian carriers is probably the key policy step Kingfisher desperately wants the government to take. Unlike in 2007, when ailing airlines were bought over by Kingfisher and Jet Airways, there are no domestic carriers circling to buy up rivals today.
