Vijay Mallya has assured us through a series of angry tweets last night that he is no quitter, that he will follow the process of law in India. He has also indicated there is no need to question his assets since these are in the public domain, thanks to his stature as a Parliamentarian.

As chatter around his retreat to the UK and inability of India’s public sector banks to recover monies lent to him for Kingfisher Airlines grows, here’s a question that begs answers: Could a more benign policy and regulatory environment have helped arrest the steep decline of Kingfisher Airlines, perhaps prevented its demise?

At a time when anyone and everyone has been cursing banks and their tardiness in preventing Mallya from allegedly sinking up to Rs 9,000 crore of cash in the airline business, it is hard to even think if the government of the day could have done more to help Mallya destroy public wealth.

The popular sentiment is that banks crawled when asked to bend, that the UPA government bent over backwards to help Mallya. Kingfisher would have suffered even if these hurdles had been negotiated since it lacked an efficient management team till very late and decisions were taken arbitrarily. Never the less, here is a look at how harsh the policy, regulatory and competitive environment also contributed to Mallya’s ruin.

1) During the UPA regime, there were several discussions within the government over doing away with the 5/20 restriction but nothing came of these talks; this rule is applicable till date. The 5/20 restriction did not permit airlines to fly overseas unless they had completed five years of domestic operations and had a fleet of 20 aircraft. A dream to launch overseas flights pushed Mallya to make the disastrous acquisition of Air Deccan in 2007-08. Air Deccan would have become eligible to fly overseas in 2008.

After the acquisition, Mallya made strategic mistakes which further hurt the combined airline entity. Air Deccan was the pioneer of ultra low fares but once Mallya acquired it, he altered its pricing structure. Passengers, instead of flocking to the higher priced Kingfisher brand, chose other LCCs. This acquisition and its incompetent handling is largely responsible for the ruin of KFA. Had the 5/20 restriction been restricted or relaxed, perhaps Mallya may not have considered Air Deccan and the KFA saga may have ended differently.

2) The UPA rule also saw much discussion over allowing foreign airlines to invest in Indian carriers but this was eventually permitted only in September 2012. At that time, the government allowed foreign airlines to pick up no more than 49% stake in Indian carriers. Kingfisher had to shut operations in December 2012 – had this restriction been lifted earlier, KFA may have been able to get critical funding from a foreign partner.

Several people aware of developments at that time say that Mallya was shocked when a Gulf based prominent airline signed up with a large Indian airline in 2013 despite holding extensive talks with him for funding KFA and picking up some equity in his airline. These people say Mallya was close to signing the term sheet for this deal when his Indian rival steered the Gulf airline and swung the deal away from KFA, in a matter of hours.

3) Several industry experts had wondered at the swift action by the NDA government during December 2014 which helped another Indian airline going belly-up, SpiceJet, to be rescued in the nick of time. It was no secret that the government was behind the bail out of SpiceJet, which had run out of cash to pay oil marketing companies for jet fuel and whose promoters had indicated they would have no choice but to shut down the airline.

Though another, former SpiceJet promoter stepped in with much-needed funds and acquired a controlling stake just then, the government did its bit by asking stakeholders like the Airports Authority of India and some oil marketing companies to extend credit to the moribund SpiceJet till it was in a position to make payments. It also quickly reversed an order of aviation regulator DGCA which had banned fresh bookings, realizing that this would generate much-needed cash for the airline to at least pay its fuel bills.

If NDA could prevent another Indian airline going bust and leaving thousands of people without jobs, should the previous government not have extended a lifeline to Kingfisher and done the same? What swung in favour of SpiceJet was the fact that though it owed large sums of money to suppliers etc, it did not renege on paying employee salaries and neither was it defaulting on large amounts of loan from banks. With Kingfisher Airlines, complete disregard of employee arrears and mounting bank loans were reasons enough for the government to maintain a safe distance.

4) Let’s now look at the competitive scenario. Air Deccan heralded the LCC arrival in India with its launch in 2003-04. Spice Jet, Go Air and Indigo, three other LCCs began operations between 2005-06 and 2006-07. But the full service KFA entered the market only in 2005-06, when LCCs controlled nearly half the market and had begun offering tickets at throwaway prices. A Crisil report notes that in 2007-08, the aviation landscape in India was “extremely competitive. With competition rising rapidly, the new entrants and incumbent players rapidly expanded their fleet, in a bid to capture market share. The share of LCCs rose to 47 per cent in 2007-08 from 42 per cent in 2006-07. However, this expansion heavily eroded players’ profitability.

Costs incurred by airlines on ATF, manpower, etc, rose sharply, but companies were unable to hike fares due to intense competition. This led to pressure on realizations, and profit margins of most airlines slid into the red. The industry's combined losses amounted to Rs 4,900 crore in 2007-08. The capital structure of most airlines deteriorated, while some carriers faced a liquidity crunch and had to raise further debt to meet capital expenditure requirements.”

5) This fierce competitive scenario and the near-absence of pricing power lead to a consolidation among Indian airlines – their mounting losses eroded networths, forcing financially weak companies to sell out or merge with stronger companies. So JetLite (erstwhile Air Sahara) was acquired by Jet Airways, Kingfisher bought Air Deccan and Indian Airlines was merged with Air India to form a new entity.

But by 2009-10, continuous fleet expansion by LCCs put further pressure on airlines like Jet and Kingfisher so that the share of the top three players (Jet Airways, Kingfisher and merged Air India) dropped to around 60 per cent in 2009-10. To sustain and expand their market share, Jet Airways and Kingfisher introduced low-fare operations under the Jet Konnect and Kingfisher Red brands, respectively. For both airlines, this further complicated matters and worsened their balance sheets.

Kapil Kaul, CEO and Director of CAPA South Asia points out that regulatory and policy roadblocks coupled with a very negative fiscal regime and high ATF prices, though known, did create serious financial and viability challenges for Kingfisher Airlines. “Even after close to $600 million of investment by Vijay Mallya and another $735 million (principal only) funding by banks, KFA couldn’t survive. KFA had a world class front-end but a very poor cost base and management structure. It would have been a lot different if KFA had the right management and governance oversight”.

Mallya made many errors of commission as well as omission in the Kingfisher saga but his biggest mistake may have been withholding employee salaries. He was operating in a negative environment but so were other airlines. Policy, regulatory and pricing factors together cannot atone for Mallaya’s sins of mismanagement.