The art of flying on froth

In good spirits Mallya controls a third of the 70-odd breweries in India, all thanks to his father’s foresight
In good spirits Mallya controls a third of the 70-odd breweries in India, all thanks to his father’s foresight
Photo: AFP

IT WAS a marriage made in hell. Vijay Mallya and the aviation business just didn’t seem right for each other. Running an airline is one of the tightest, hardest, most cut-throat businesses around. Even at the best of times, profit margins are wafer thin. The International Air Transport Association (IATA) estimates the civil aviation industry made only 1.3 percent as net profit in 2011. Its prediction for 2012 is a net profit margin of 0.5 percent.

“Running an airline,” says a businessman with insider knowledge, “is not easy, but not impossible either. This is a competitive business, which offers steady but low margins and no windfall gains. It all depends on the efficiency of operations and on the capability of the management model.” Companies go to great lengths to cut costs and shape up. Some sack employees; others, such as India’s Indigo Airlines, use a special thin paint for the interiors of planes to ensure lower weight, and quick turnaround. The eye for detail is critical.

Such operational rigour was never Vijay Mallya’s strong point. “He’s the flamboyant guy,” says a Bengaluru-based business executive who has known him for many years, “the marketing icon for his liquor business.” This is not the sort of hard-nosed nerd you need to run an airline.

The Kingfisher episode has also raised questions about the independence and integrity of India’s banking system

It may sound like a case of being wiser after the event but frankly the signs were there from the first moment. Inaugurated in 2005, Kingfisher Airlines, Mallya’s tool, toy and most indulged baby, has never made money, not in one year. On 20 October, the Directorate General of Civil Aviation (DGCA) suspended its licence to fly. Some 3,700 employees were left contemplating their future. More importantly, a clutch of largely public- sector banks is looking at writing off loans worth roughly Rs 6,000 crore as bad debt.

The saga gets more horrifying. In April 2012, 13 banks converted a fifth of Kingfisher’s then debt into equity. Rs 1,650 crore was simply erased from the debt books and changed into shares of Kingfisher. The 13 banks, including such stalwarts of the banking system as State Bank of India, Punjab National Bank and ICICI Bank, were left with 25 percent ownership of Kingfisher and shares bought at Rs 64 each. Today, each of those shares is worth Rs 10, and the rest of Kingfisher’s debt still remains unpaid. In the end, the taxpayer — the poor sod who underwrites operations of public-sector banks — and the small investor who owns part of both public-sector and private banks will pick up the bill.

As bank managers frown and complain of pressure and phone calls from Mallya’s politician friends to “do something” and “help him out” and as employees fret — the wife of one of Kingfisher’s employees, not paid his salary for months, committed suicide in New Delhi recently — the man himself is unfazed. There are reports of him making it to the Indian Formula 1 event in Greater Noida this coming weekend in a helicopter. His son and heir, Siddharth, sent out tweets about shooting the Kingfisher swimsuit calendar with a bevy of models, and of the excitement of pub-hopping in London. Discretion doesn’t seem to run in the family.

Living it up Mallya’s love of the good life has been in stark contrast to his employees’ troubles
Living it up Mallya’s love of the good life has been in stark contrast to his employees’ troubles
Photo: Indian Express Archive

HAS IT ever? Friends and classmates from La Martiniere, Calcutta, where Mallya went to school in the 1960s, recall him making lifestyle statements even back then. Calcutta (now Kolkata) in those times was pretty much an old-school, old-money town, more subtle than showy. Nevertheless, Mallya drove himself to school in a flashy sports car. He lived in the city with his mother, estranged from her husband, Vittal Mallya, who lived in Bangalore and Bombay (now Mumbai).

The car fascination was to stay on for life. In the 1980s, Mallya drove in races on the Sholavaram racetrack near Chennai, a sort of poor man’s F1 in a poorer, more insulated India. In 2007, he became co-owner of an F1 team. The bigger partner in Force India — to give the F1 entity its name — is the Sahara business group.

It wasn’t the sort of impulse or vanity purchase Vittal Mallya would have made. A careful, cautious businessman, with a fetish for accountancy, the senior Mallya bought and then expanded United Breweries, his flagship company, brick by brick. In the 1960s and ’70s, as state after state experimented with prohibition — and as the banning of alcohol consumption in the old Bombay state triggered a series of smuggling and bootlegging opportunities, Vittal Mallya bided his time.

Mallya’s Assets

Breweries & Spirits



Fertilisers & Chemicals


United Breweries Holdings, United Spirits, United Breweries, McDowell Holdings

Kingfisher Airlines

Force India F1 team Royal Challengers Bangalore

Mangalore chemicals and fertilisers

UB Engineering

8,888.68 CR

-5,082.40 CR

1,343.24 CR

535.49 CR

131.43 CR

He began buying breweries at a moment when nobody was sure how long prohibition would last. Inevitably, he got some good bargains, and bet on the assumption that an irrational ban of this nature just couldn’t last. He was right. As government policy began to change and the prohibition mania ran its course, the Mallyas were well-positioned. It is substantially a tribute to Vittal Mallya’s careful empire building in those early years that UB and associated companies now control about a third of the 70-odd breweries in India and run 60 percent of the country’s beer manufacturing capacity.

However, father and son didn’t quite hit it off. In the 1970s, Vittal sent Vijay to the US to study and work. Instead, the younger man lived the good life, ran up huge bills and played the perfect playboy. One evening in 1983, a family friend says, recounting an apocryphal story, Vittal Mallya was at a party in Bombay when he was being told of his son’s excesses in New York by an acquaintance who had just got back. The old man began to fume. “It is believed he lost his temper,” the friend says, “swore he’d rewrite his will and disinherit his son.” Suddenly, he dropped to the ground, having suffered a heart attack. In a few minutes, he was dead.

Far from being disinherited, Vijay Mallya had inherited a $100 million business conglomerate.

THE INITIAL years were a struggle. Like many other family-run businesses of the period, the Mallya Group went into a diversification binge in the 1980s. At one stage, Vijay Mallya was running 20 different types of businesses — alcohol, of course, but also software and batteries, pharmaceuticals and paints, and processed food. Eventually, Mallya sold almost everything apart from the flagship alcohol beverages businesses. It is telling that of the companies he sold, only Berger Paints — bought in 1988 and sold in 1996 for a $66 million profit — made him a lot of money.

The real moment of departure came in 1991, when liberalisation began. A new services sector economy opened up, with jobs and disposable incomes for young people and an aspirational hunger among consumers. Mallya’s brainwave was picking Kingfisher, till then a small brand in his large portfolio, and growing it into a pan-Indian phenomenon — promoting it personally as India’s beer of choice.

He became Kingfisher’s brand ambassador and marketing mascot, with his love of the good life, his beach shirts, reputed fleet of 250 vintage cars, houses in Scotland (a castle), California, Monte Carlo and elsewhere, and easy-going persona becoming a sort of inspiration for a certain type of young person. His purchase of an Indian Premier League cricket team was a logical conclusion.

It must be realised though that Mallya makes his money in what is essentially a controlled and protected business. The liquor business is one of India’s most complex and impregnable. Fixing provincial politicians; negotiating a series of local taxes and state-level entry and exit levies; getting permission for new breweries; lobbying to get politicians to deny permission to rivals; influencing policy to keep taxes on imports high — this is part of the architecture of the industry.

Betrayed Kingfisher employees mourn the death of a colleague’s wife who took her life
Betrayed Kingfisher employees mourn the death of a colleague’s wife who took her life
Photo: AP

It is an architecture Mallya has mastered. His friends in politics range from Sharad Pawar to SM Krishna. Indeed, every chief minister of Karnataka, irrespective of party, seems to have a fondness for him. In the Ministry of Civil Aviation, both Praful Patel and Ajit Singh tried to help him to the maximum. When his first Rajya Sabha term expired in 2008, Ananth Kumar and M Venkaiah Naidu urged the BJP to back him for re-election.

In the Vidhan Soudha in Bengaluru, independent and small-party MLAs inevitably support his Rajya Sabha forays. When he came back to the Rajya Sabha in 2010, he became a member of the Consultative Committee for the Ministry of Civil Aviation despite being the promoter of an airline. It was a clear conflict of interest, but that’s India for you. Kingfisher Airlines has been Mallya’s Achilles’ heel. Modelling himself on Richard Branson — with the personal video welcome to every passenger — and allegedly sitting in on the selection of air hostesses in some cases, Mallya certainly created a buzz about the airline.

He blundered in his purchase of Air Deccan in 2007. A low-cost airline with more problems than Mallya found at the due diligence stage, Air Deccan didn’t fit in with the long-term plans of the all-frills, high-end airline that Kingfisher wanted to be. Mallya was insistent on the purchase because Deccan had been flying long enough to get an international operations licence. Perhaps, Kingfisher moved into foreign skies too quickly for its comfort and well before it had established itself at home.

There were also some dodgy business decisions. “Compared to say Indigo,” says a businessman familiar with Indian aviation, “Kingfisher paid $3-5 million more per aircraft it bought. I believe it bought about 60 planes before selling them and then leasing them back.” Was this just a bad bargain or is there a hidden mystery here? The rumours have not gone away. Nevertheless, it is likely that his airline clanger is going to cost Mallya a slice of his personal fortune and equity in his prized alcohol companies.

THE KINGFISHER episode, with its high-octane mix of politics and business and smell of cronyism, has also raised questions about the independence and integrity of India’s banking system. How come veteran bankers kept making one wrong call after another? How come money was poured into a business — aviation — that nobody, not the promoter and not the lending banks, seemed to understand or at least adhere to the operational principles of?

In August 2012, the Zurich-based bank Credit Suisse released a report that pointed out 10 Indian business groups, each owned by a different family, now owed Rs 5.4 lakh crore to Indian banks. The companies had owed less than Rs 1 lakh crore a half-decade ago. In five years, their debt had gone up five times. The total amount they owed Indian banks amounted to 13 percent of all bank loans and 98 percent of the net worth of the Indian banking system. Such concentration of risk was extremely unusual and not seen in any other major emerging economy.

Kingfisher was not part of that list of 10. To be fair, it is possible that all of those 10 companies are perfectly capable of servicing their debts and will pay back every penny. Even so, given the record of corporate debt recasting in India, many would suspect that, like Kingfisher, several big Indian corporations think of their debt as a shield. They reckon they are too big to fail. The government and the banks — not to speak of political connections — will bail them out.

In February 2012, when Kingfisher Airlines was close to being shut down, Corporate Affairs Minister M Veerappa Moily jumped in and said it had “to be saved”, helpfully mentioning he met Mallya “because (like me) he hails from Karnataka” and how Kingfisher was a “vibrant airline” that had “given excellent service”. The point is, if Kingfisher Airlines, or any such company has to be saved, why not force the promoters to cede management, control to professionals from outside, who would work under the direction of the lender banks and make a genuine attempt to salvage the company?

In the case of Kingfisher, that should have been done a year ago. Now it may be too late. Unfortunately, the taxpayer will lose much more than Mallya.

Ashok Malik is Contributing Editor, Tehelka.