Mallya's leap of faith

Vijay Mallya is undoubtedly the most flamboyant businessman in India. In the Indian press, he is often compared with Richard Branson of Virgin. He leads a colourful life and is a successful businessman. His spirits group- United Breweries- is an industry leader. He also owns ‘Kingfisher Beer’, which is a reasonably known international brand. More recently Mr. Mallya has entered the airline industry. Doing well in this segment will be much more of a challenge as the competitive landscape is extremely tough right now, and the stakes are much higher.

When Mallya’s Kingfisher airlines entered Formula One earlier this year as a sponsor to Toyota F1 team, it seemed to be a good, measured move which would enhance the brand visibility of his airline just as it was about to start services in international routes. But Mallya’s latest move to buy the Spyker F1 team is a much bigger move and an extremely ambitious one. It is to be noted that Mallya will use his own money - rather than involve any of the shareholders of his publicly listed company- for buying and running Spyker. The kind of money involved here is huge. Buying the team will cost around 80 – 90 million euros (450 crore Indian Rupees). In addition to this, the operations of the team will have to be financed. Considering that Spyker is presently a loss making entity (it made a loss of around 30 million euros in the first half of this year), this will be a very costly affair. Moreover, Mallya will be hoping for a turnaround in the team’s fortunes in another 1-2 years. This will be the most difficult part. Teams like Toyota and Honda have proved that money cannot guarantee success in this sport. And anyway, Mallya can never hope to match the budgets of the manufacturer-backed teams.

My guess is that, having entered the deal, Mallya will stick on with Spyker for 2-3 years and control the financial bleeding of the team. He is smart enough not to believe in miracles. He will try and minimize the bleeding of the team financially. He will utilize the 2-3 years to build a well-known brand out of his airline. He will try and bring in an Indian driver and use him to endorse his company. He will also try and make sure that an Indian Grand Prix happens- latest by 2009. At the end of these 2-3 years, Kingfisher Airlines will be known world over and Mallya would’ve achieved his objective. At the end of this period, Mallya will start looking for a good price at which to exit his ‘investment’. Inevitably there will be another corporate entity somewhere which would want to utilize Spyker’s (or whatever it will be called then) services for achieving its own corporate objectives, and the story will continue thus…

Things could go wrong though, if Spyker’s financial bleeding cannot be stopped without severely hampering its competitiveness. Mallya is rich, but he is not stupid. He is not a Roman Abramovich, who is spending his personal fortune on a soccer team to simply amuse himself. Mallya’s move is strictly business oriented. This is a calculated gamble that he is making. He is hoping that the money that he will bleed in Spyker will be compensated by making Kingfisher the airline of choice for flying in and out of India. But this is a risky move since Mallya is totally inexperienced in running an F1 team. I doubt if he has ever owned any motorsport team.

Mallya is going for all or nothing here. He is entering untested waters and the only reward that will justify his risk is if his airline becomes the number one Indian carrier in international routes. Here’s wishing Mr. Mallya best of luck in his leap of faith!

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