Kingfisher Airlines has been in the news lately for defaulting on its payments. Most experts say that it is likely that they will fold up. There are reports that Kingfisher has asked for favorable terms from the government in terms of rules, taxes and whatever else to get out of this situation. What this possibly means is a Government bailout.
I am not expert in these matters however the concept of a “bailout” does not go down too well with me, especially when you want to play by the rules and let the market forces decide what happens. On Twitter today, I got hold of an excellent article titled “Nassim Taleb’s Big Idea: Transforming Debt into Equity” written by John Aziz. The article contained a section that struck me as the answer that I would give on why Kingfisher or for that matter, no one should be bailed out.
I quote the section from the article:
“If bad companies can succeed just as easily as well-run ones, then the market mechanism is rendered meaningless. Why innovate and create when instead you can run on government largesse? Why seek efficiency when inefficiency gets you cash just as easily? Furthermore, this government largesse starves new businesses of opportunities and cash. Every dollar taxed to pay for bailouts is a dollar that could have instead been invested in a startup. And every juggernaut that is saved is a hole in the marketplace that could instead have been filled by a new and better company.”