Will Team Force India Again Be “The Financial Basket Case” For Its Owners?
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Oct 18, 2008
There will be some nervousness at the Force India factory as Prime Sponsor Kingfisher’s airline business sees substantial losses - and several other sponsors are in business areas that will be at the coal face if there is a recession.
Kingfisher’s “kingfisherworld.com” website’s media section went silent in February 2007 after a flurry of good news stories.
That was half-a-year before the company’s founder Dr. Vijay Mallya announced that he (personally) would purchase the Spyker Formula One Team from a group of venture capitalists who turned out to be more venture than capital. Mallya in fact co-owns the team with Michiel Mol who owns a large part of Lost Boys International, a major sponsor for the team in under previous ownership.
Before Spyker’s involvement the team was known as Midland having been bought from Eddie Jordan as a financial basket case. Unfortunately, Alex Schnaider’s Midland money wasn’t enough to fund the team and its development.
It’s fortunate that Mallya’s power base in brewing and distilling is doing well for Formula One is a massively expensive sport.
The team has support from a lot of not very wealthy sponsors, and moreover, currently some of them are struggling in the current economic climate. The most promising sponsors of Force India seemedt to be ICICI Bank, Reliance Group, Kingfisher, and Airbus.
But this week, Kingfisher and Jet, India’s main low-cost carrier which has recently begun flights to Singapore and Malaysia, have made an announcement that falls short of merger but is very close to integration.
Increased fuel prices and decreasing air travel are blamed for both airlines making whacking losses in recent months and the companies see it continuing. Described as “an alliance” in some respects, it is a rescue package for both by the other.
Naresh Goyal, Chairman of Jet, described the not-quite-merger as “a completely new industrial model for aviation in India which would be based on an unprecedented depth of cooperation between the two companies. There will be huge cost savings and revenue enhancement opportunities arising from this alliance.” For “revenue enhancement” mean “reduction in losses.”
At least part of the purpose of the Jet / Kingfisher deal was to increase the prospect of access to capital: how bankers will view such a consolidation of power, particularly given Mallya’s chairmanship of the Group as a whole and his personal and extensive time being spent with Force India (which is itself spending money at an alarming rate as it strives - and to a great extent succeeds - to pull itself up the grid.
Kingfisher signed a “multi-year” agreement with Toyota’s F1 team in January 2007 to put “Fly Kingfisher” on the side of the Panasonic Toyota team. The Kingfisher logo has disappeared from the Toyota cars.
The little team that can, or is increasingly close to doing, will be biting their fingers as they prepare for this week’s Chinese Grand Prix. Surely history can’t repeat itself for the fourth time?
