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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 84

THE KING WITHOUT FISHES...!!!
[CASE ON CRISIS OF KINGFISHER AIRLINES]
Prof. Bhavik M. Panchasara
Marwadi Education Foundations Group of Institutions, RajKot, bhavikpanchasara@gmail.com
ABSTRACT
Indian Aviation Industry is one of the fastest growing markets in the world. But nowadays it is in the news due to
different reason. And that is the failure of one of the leading aviation player - Kingfisher Airlines. The airline has
been facing financial issues for many years. Till December 2011; Kingfisher Airlines had the second largest share
in India's domestic air travel market. However due to the severe financial crisis faced by the airline, it has the fifth
largest market share currently. Even the company have no funds to pay the salaries to the employees and is facing
several other issues like fuel dues; aircraft lease rental dues, service tax dues and bank arrears. This case outlines
the financial turmoil of the Kingfisher in detail.
Keywords: Aviation industry, Kingfisher Airlines, financial turmoil, financial issues, crisis and debt restructuring
INTRODUCTION:
Kingfisher Airlines is an airline group based in India.
Its head office is The Qube in Andheri (East),
Mumbai; and Registered Office in UB City,
Bangalore. Kingfisher Airlines was established in
2003. It is owned by the Bengaluru based United
Breweries Group. Kingfisher Airlines, through its
parent company United Breweries Group, has a 50%
stake in low-cost carrier Kingfisher Red. The airline
started commercial operations in 9 May 2005 with a
fleet of four new Airbus A320-200s operating a flight
from Mumbai to Delhi. It started its international
operations on 3 September 2008 by connecting
Bengaluru with London.
The airline has been facing financial issues for many
years. Till December 2011; Kingfisher Airlines had
the second largest share in India's domestic air travel
market. However due to the severe financial crisis
faced by the airline, it has the fifth largest market
share currently, only above Go Air. Kingfisher
Airlines is one of the only seven airlines awarded 5-
star rating by Skytrax along with Cathay Pacific,
Qatar Airways, Asiana Airlines, Malaysia Airlines,
Singapore Airlines, and Hainan Airlines. Kingfisher
operates 250 daily flights with regional and long-haul
international services. In May 2009, Kingfisher
Airlines carried more than 1 million passengers,
giving it the highest market share among airlines in
India. Kingfisher also owns the Skytrax award for
India's best airline of the year 2011.
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 85
STARTING OF THE CRISES:
Ever since the airline commenced operations in 2005,
the company is reporting the losses. But the situation
became more horrible after acquiring the Air Deccan
in 2007. After acquiring the Air Deccan, the company
suffered a loss of over Rs. 1,000 crore for three
executive years. By early 2012, the airline
accumulated the losses of over Rs. 7,000 crore with
half of its fleet grounded and several members of its
staff going on strike. Following table 1 highlights
losses of the company since inception:
Table 1: Net Reported Losses and debts since inception (Rs. In Crores)
Year Mar-11 Mar-10 Mar-09 Mar-08 Jun-07 Jun-06 Mar-05
Loss -1027.4 -1646.22 -1608.83 -188.14 -419.58 -340.55 -16.79
Secured Loans 5,184.53 4,842.43 2,622.52 592.38 716.71 448.16 159.42
Unsecured Loans 1,872.55 3,080.17 3,043.04 342.00 200.00 3.50 125.06
DEBT RESTRUCTURING:
In the situation of loss and tough financial
condition, the company went for more loans. Table 1
shows the portion of secured and unsecured loans
taken by the company. Due to heavy burden of debt
and interest, in November 2010, the company
adopted the way of debt restructuring and under that
total 18 leading lenders, those have landed total Rs.
8,000 crores, agreed to cut interest rates and convert
part of loans to equity. As per the contract, lenders
have converted Rs. 650 crores debt into preference
shares which will be converted into equity when the
company lists the on the Luxembourg Stock
Exchange by selling global depositary receipts
(GDR). Shares will be converted into ordinary equity
at the price at which the GDRs are sold to investors.
Besides the 1,400 crore debt which will be
converted into preference shares, another 800 crore
debt has been converted into redeemable shares for
12 years. Due to debt restructuring, the company able
to down the average interest rate to 11% and to save
Rs. 500 crores every year in interest cost.
CRISIS TILL CONTINUE:
Debt restructuring also couldnt change the
game. By restructuring, company had reduced the
interest charges by Rs. 500 crores every year, but due
to the high leverage condition and increase in cost,
the company started to face the liquidity problem.
The company had no funds in hand and it created the
following payment problems.
DELAYED SALARY:
Kingfisher Airline has staff strength of 6,000
and spends 58 crore on salaries a month. According
to the first quarter financial results, it has 173.66
crore under the employees cost head, which has
increased from 163.40 crore during the same
quarter last year. Kingfisher Airlines delayed salaries
of its employees in August 2011, and for four months
in succession from October 2011 to January 2012.
Kingfisher also defaulted on paying the Tax
Deducted at Source from the employee income to the
tax department.
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 85
STARTING OF THE CRISES:
Ever since the airline commenced operations in 2005,
the company is reporting the losses. But the situation
became more horrible after acquiring the Air Deccan
in 2007. After acquiring the Air Deccan, the company
suffered a loss of over Rs. 1,000 crore for three
executive years. By early 2012, the airline
accumulated the losses of over Rs. 7,000 crore with
half of its fleet grounded and several members of its
staff going on strike. Following table 1 highlights
losses of the company since inception:
Table 1: Net Reported Losses and debts since inception (Rs. In Crores)
Year Mar-11 Mar-10 Mar-09 Mar-08 Jun-07 Jun-06 Mar-05
Loss -1027.4 -1646.22 -1608.83 -188.14 -419.58 -340.55 -16.79
Secured Loans 5,184.53 4,842.43 2,622.52 592.38 716.71 448.16 159.42
Unsecured Loans 1,872.55 3,080.17 3,043.04 342.00 200.00 3.50 125.06
DEBT RESTRUCTURING:
In the situation of loss and tough financial
condition, the company went for more loans. Table 1
shows the portion of secured and unsecured loans
taken by the company. Due to heavy burden of debt
and interest, in November 2010, the company
adopted the way of debt restructuring and under that
total 18 leading lenders, those have landed total Rs.
8,000 crores, agreed to cut interest rates and convert
part of loans to equity. As per the contract, lenders
have converted Rs. 650 crores debt into preference
shares which will be converted into equity when the
company lists the on the Luxembourg Stock
Exchange by selling global depositary receipts
(GDR). Shares will be converted into ordinary equity
at the price at which the GDRs are sold to investors.
Besides the 1,400 crore debt which will be
converted into preference shares, another 800 crore
debt has been converted into redeemable shares for
12 years. Due to debt restructuring, the company able
to down the average interest rate to 11% and to save
Rs. 500 crores every year in interest cost.
CRISIS TILL CONTINUE:
Debt restructuring also couldnt change the
game. By restructuring, company had reduced the
interest charges by Rs. 500 crores every year, but due
to the high leverage condition and increase in cost,
the company started to face the liquidity problem.
The company had no funds in hand and it created the
following payment problems.
DELAYED SALARY:
Kingfisher Airline has staff strength of 6,000
and spends 58 crore on salaries a month. According
to the first quarter financial results, it has 173.66
crore under the employees cost head, which has
increased from 163.40 crore during the same
quarter last year. Kingfisher Airlines delayed salaries
of its employees in August 2011, and for four months
in succession from October 2011 to January 2012.
Kingfisher also defaulted on paying the Tax
Deducted at Source from the employee income to the
tax department.
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 85
STARTING OF THE CRISES:
Ever since the airline commenced operations in 2005,
the company is reporting the losses. But the situation
became more horrible after acquiring the Air Deccan
in 2007. After acquiring the Air Deccan, the company
suffered a loss of over Rs. 1,000 crore for three
executive years. By early 2012, the airline
accumulated the losses of over Rs. 7,000 crore with
half of its fleet grounded and several members of its
staff going on strike. Following table 1 highlights
losses of the company since inception:
Table 1: Net Reported Losses and debts since inception (Rs. In Crores)
Year Mar-11 Mar-10 Mar-09 Mar-08 Jun-07 Jun-06 Mar-05
Loss -1027.4 -1646.22 -1608.83 -188.14 -419.58 -340.55 -16.79
Secured Loans 5,184.53 4,842.43 2,622.52 592.38 716.71 448.16 159.42
Unsecured Loans 1,872.55 3,080.17 3,043.04 342.00 200.00 3.50 125.06
DEBT RESTRUCTURING:
In the situation of loss and tough financial
condition, the company went for more loans. Table 1
shows the portion of secured and unsecured loans
taken by the company. Due to heavy burden of debt
and interest, in November 2010, the company
adopted the way of debt restructuring and under that
total 18 leading lenders, those have landed total Rs.
8,000 crores, agreed to cut interest rates and convert
part of loans to equity. As per the contract, lenders
have converted Rs. 650 crores debt into preference
shares which will be converted into equity when the
company lists the on the Luxembourg Stock
Exchange by selling global depositary receipts
(GDR). Shares will be converted into ordinary equity
at the price at which the GDRs are sold to investors.
Besides the 1,400 crore debt which will be
converted into preference shares, another 800 crore
debt has been converted into redeemable shares for
12 years. Due to debt restructuring, the company able
to down the average interest rate to 11% and to save
Rs. 500 crores every year in interest cost.
CRISIS TILL CONTINUE:
Debt restructuring also couldnt change the
game. By restructuring, company had reduced the
interest charges by Rs. 500 crores every year, but due
to the high leverage condition and increase in cost,
the company started to face the liquidity problem.
The company had no funds in hand and it created the
following payment problems.
DELAYED SALARY:
Kingfisher Airline has staff strength of 6,000
and spends 58 crore on salaries a month. According
to the first quarter financial results, it has 173.66
crore under the employees cost head, which has
increased from 163.40 crore during the same
quarter last year. Kingfisher Airlines delayed salaries
of its employees in August 2011, and for four months
in succession from October 2011 to January 2012.
Kingfisher also defaulted on paying the Tax
Deducted at Source from the employee income to the
tax department.
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 87
FUEL DUES:
In the past several years, Kingfisher airlines
had trouble paying their fuel bills. Due non-payment,
several Kingfisher's vendors had filed winding up
petition with the High Court. As on Nov 2011,
winding up petition of seven creditors was pending
before the Bangalore High Court. In the past
Lufthansa Technik & Bharat Petroleum Corporation
Limited (BPCL) had also filed winding up petition
against Kingfisher Airlines. Here are some cases:
HPCL: In Jul 2011, Hindustan Petroleum
Corporation Limited (HPCL) stopped the fuel
(ATF) supplies for about two hours to Kingfisher
airlines owing to the non-payment of dues.
Situation was later resolved.
BPCL: Bharat Petroleum Corporation in 2009
had filed a case against Kingfisher airlines for
non-payment of dues. High court in an order said
that the entire amount 245 crore had to be paid
by Nov 2010 and the airline paid it in
instalments.
AIRCRAFT LEASE RENTAL DUES:
Since 2008, it has been reported that
Kingfisher Airlines has been unable to pay the
aircraft lease rentals on time. Due to that, the
Kingfisher Airlines has grounded 15 out of 66 aircraft
in its fleet as it was unable to meet the maintenance
and overhaul expenses. Here are the some major
issues with:
GECAS: In Nov 2008, GE Commercial Aviation
Services threatened to repossess 04 leased planes
in lieu of default. Kingfisher Airlines initially
denied that it missed the payments. GECAS had
filed a complaint with DGCA saying Kingfisher
had defaulted on rentals for four A320 aircraft,
and sought repossession of the planes. In Jan
2009, The Karnataka High Court rejected
petition by Kingfisher Airlines to restrain
GECAS from taking any step to deregister and
repossess the 04 aircraft in dispute. As a result,
Kingfisher had to return the A320 aircraft to
GECAS.
DVB: In Jul 2010, DVB Aviation Finance Asia
Ltd (a lessor from Singapore), sued Kingfisher
Airlines for lease rental default. Case was filed in
a UK court on Jul 16, 2010 after Kingfisher did
not pay for three month lease rental for A320
aircraft it leased from DVB.
AAI REPORTS:
Kingfisher received a notice from the
Airports Authority of India on February 2012
regarding accumulated dues of 255.06 crore. The
airline was operating on a cash and carry basis for the
last six months, with daily payments amounting to
0.8 crore.
SERVICE TAX:
On 9 December 2011, S.K. Goel, chairman,
Central Board of Excise and Customs (CBEC)
announced that CBEC is considering legal action
against Kingfisher for not paying service tax. As on
10th Jan 2012, Kingfisher Airlines has service tax
arrears of 70 crore. The Ministry of Finance has
given a concession to Kingfisher and instructed them
to pay the dues by 31st Mar 2012. In Jan 2012,
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 88
Kingfisher paid 20 crore towards its dues for
December 2011 and part of the arrears.
BANK ARREARS:
Kingfisher Airlines had not paid some
bankers (Lenders) as per the Debt Recast Package
(DRP) with lending banks. Till the end of Dec 2011,
the arrears were estimated to be 260 crore to 280
crore. Lenders hence had told Kingfisher Airlines to
clear its dues before they can release any more money
sought by the Airline. Ravi Nedungadi, chief
financial officer of UB Group however said that the
arrears were 180 crore. State Bank of India (SBI) on
5th Jan 2012 declared Kingfisher Airlines a NPA.
SBI is largest creditor and the leader of the
consortium of banks in the DRP (Debt Recast
Package) and has an exposure of 1,457.78 crore.
Thus, by Feb 2012, Kingfisher has been declared
NPA by following banks:
State Bank of India
Bank of Baroda
Punjab National Bank
IDBI
Central bank of India
Bank of India
Corporation Bank
THE CRISIS CONTINUE:
During late February, 2012, Kingfisher
Airlines started to sink into a fresh crisis. Several
flights were cancelled and aircraft were grounded.
The airline shut down most international short-haul
operations and also temporarily closed bookings. Out
of the 64 aircraft, only 22 were known to be
operational by February 20. With this, Kingfisher's
market share clearly dropped to 11.3%. The
cancellation of the flights was accompanied by a
13.5% drop in the stocks of the company on 20
February 2012. The CEO of the airlines, Sanjay
Agarwal was summoned by the Directorate General
of Civil Aviation to explain the disruptions of the
operations.
The State Bank of India, which is the lead
lender to Kingfisher airlines said that they would not
consider giving any more loans to Kingfisher unless
and until it comes up with a new equity by itself.
Political activists also claimed that bailing or helping
a private airline would lead to problems within the
Government. By February 27, Kingfisher operated
only above 150 out of its 400 flights and only 28
aircraft were functional. Reuters reported that if
Kingfisher were to shutdown, it would be the biggest
failure in the History of Indian Aviation. It was
announced that the direct flights to the smaller
airports of Jaipur, Thiruvananthapuram, Nagpur and
also to Hyderabad's Rajiv Gandhi International
Airport were all shut down and only one/two-stop
flights from its main hubs of Delhi and Mumbai
would operate.
In response to a situation as bad as
bankruptcy, Vijay Mallya announced that he had
organized funds to pay all the employees' overdue
salaries. With bank accounts frozen and huge debts
due, it is unknown so as from where he arranged the
money. But he apologized to his workers and said
that he would pay them immediately. By this time,
kingfisher had accumulated losses of 444 crore
during the third quarter of the fiscal year 2011-12.
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 88
Kingfisher paid 20 crore towards its dues for
December 2011 and part of the arrears.
BANK ARREARS:
Kingfisher Airlines had not paid some
bankers (Lenders) as per the Debt Recast Package
(DRP) with lending banks. Till the end of Dec 2011,
the arrears were estimated to be 260 crore to 280
crore. Lenders hence had told Kingfisher Airlines to
clear its dues before they can release any more money
sought by the Airline. Ravi Nedungadi, chief
financial officer of UB Group however said that the
arrears were 180 crore. State Bank of India (SBI) on
5th Jan 2012 declared Kingfisher Airlines a NPA.
SBI is largest creditor and the leader of the
consortium of banks in the DRP (Debt Recast
Package) and has an exposure of 1,457.78 crore.
Thus, by Feb 2012, Kingfisher has been declared
NPA by following banks:
State Bank of India
Bank of Baroda
Punjab National Bank
IDBI
Central bank of India
Bank of India
Corporation Bank
THE CRISIS CONTINUE:
During late February, 2012, Kingfisher
Airlines started to sink into a fresh crisis. Several
flights were cancelled and aircraft were grounded.
The airline shut down most international short-haul
operations and also temporarily closed bookings. Out
of the 64 aircraft, only 22 were known to be
operational by February 20. With this, Kingfisher's
market share clearly dropped to 11.3%. The
cancellation of the flights was accompanied by a
13.5% drop in the stocks of the company on 20
February 2012. The CEO of the airlines, Sanjay
Agarwal was summoned by the Directorate General
of Civil Aviation to explain the disruptions of the
operations.
The State Bank of India, which is the lead
lender to Kingfisher airlines said that they would not
consider giving any more loans to Kingfisher unless
and until it comes up with a new equity by itself.
Political activists also claimed that bailing or helping
a private airline would lead to problems within the
Government. By February 27, Kingfisher operated
only above 150 out of its 400 flights and only 28
aircraft were functional. Reuters reported that if
Kingfisher were to shutdown, it would be the biggest
failure in the History of Indian Aviation. It was
announced that the direct flights to the smaller
airports of Jaipur, Thiruvananthapuram, Nagpur and
also to Hyderabad's Rajiv Gandhi International
Airport were all shut down and only one/two-stop
flights from its main hubs of Delhi and Mumbai
would operate.
In response to a situation as bad as
bankruptcy, Vijay Mallya announced that he had
organized funds to pay all the employees' overdue
salaries. With bank accounts frozen and huge debts
due, it is unknown so as from where he arranged the
money. But he apologized to his workers and said
that he would pay them immediately. By this time,
kingfisher had accumulated losses of 444 crore
during the third quarter of the fiscal year 2011-12.
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 88
Kingfisher paid 20 crore towards its dues for
December 2011 and part of the arrears.
BANK ARREARS:
Kingfisher Airlines had not paid some
bankers (Lenders) as per the Debt Recast Package
(DRP) with lending banks. Till the end of Dec 2011,
the arrears were estimated to be 260 crore to 280
crore. Lenders hence had told Kingfisher Airlines to
clear its dues before they can release any more money
sought by the Airline. Ravi Nedungadi, chief
financial officer of UB Group however said that the
arrears were 180 crore. State Bank of India (SBI) on
5th Jan 2012 declared Kingfisher Airlines a NPA.
SBI is largest creditor and the leader of the
consortium of banks in the DRP (Debt Recast
Package) and has an exposure of 1,457.78 crore.
Thus, by Feb 2012, Kingfisher has been declared
NPA by following banks:
State Bank of India
Bank of Baroda
Punjab National Bank
IDBI
Central bank of India
Bank of India
Corporation Bank
THE CRISIS CONTINUE:
During late February, 2012, Kingfisher
Airlines started to sink into a fresh crisis. Several
flights were cancelled and aircraft were grounded.
The airline shut down most international short-haul
operations and also temporarily closed bookings. Out
of the 64 aircraft, only 22 were known to be
operational by February 20. With this, Kingfisher's
market share clearly dropped to 11.3%. The
cancellation of the flights was accompanied by a
13.5% drop in the stocks of the company on 20
February 2012. The CEO of the airlines, Sanjay
Agarwal was summoned by the Directorate General
of Civil Aviation to explain the disruptions of the
operations.
The State Bank of India, which is the lead
lender to Kingfisher airlines said that they would not
consider giving any more loans to Kingfisher unless
and until it comes up with a new equity by itself.
Political activists also claimed that bailing or helping
a private airline would lead to problems within the
Government. By February 27, Kingfisher operated
only above 150 out of its 400 flights and only 28
aircraft were functional. Reuters reported that if
Kingfisher were to shutdown, it would be the biggest
failure in the History of Indian Aviation. It was
announced that the direct flights to the smaller
airports of Jaipur, Thiruvananthapuram, Nagpur and
also to Hyderabad's Rajiv Gandhi International
Airport were all shut down and only one/two-stop
flights from its main hubs of Delhi and Mumbai
would operate.
In response to a situation as bad as
bankruptcy, Vijay Mallya announced that he had
organized funds to pay all the employees' overdue
salaries. With bank accounts frozen and huge debts
due, it is unknown so as from where he arranged the
money. But he apologized to his workers and said
that he would pay them immediately. By this time,
kingfisher had accumulated losses of 444 crore
during the third quarter of the fiscal year 2011-12.
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 89
FROZEN BANK ACCOUNTS:
On March 3, 2012, The Central Board of
Excise & Customs of India froze many more
Kingfisher accounts as it was unable to pay all the
dues as per schedule. Kingfisher was meant to pay
1 crore per working day. Aviation minister Ajit Singh
warned the airline about the temporary suspension of
the license until the crisis was sorted out. He
announced that the rest of the airline's fleet would be
grounded and all flights cancelled until the crisis
came to an end. This would be only one step from
permanently closing the airline.
IATA SUSPENSION:
On March 7, 2012 IATA suspended ticket
sales of Kingfisher airlines citing non-payment of
dues as the primary reason, and they said that sales
services will only be restored once Kingfisher settles
ICH (IATA Clearing House) account. IATA also
immediately directed all travel agents to stop booking
tickets for Kingfisher. This would affect Kingfisher's
business by around 30%. Kingfisher claimed that
frozen bank accounts was the main cause of being
unable to pay the IATA, and the airline started
making alternate arrangements for the sale of tickets.
Soon it became difficult for the airline to follow the
much smaller schedule that it earlier released as even
more pilots began to go on strike.
UNCERTAINTY AHEAD:
After analysing the entire scenario, there are
strong possibilities of more difficult situation in the
last month of fiscal year 2011-12. The company is in
dilemma of finding help, but from where?
Government has refused for bailing and all the
lenders and bankers have no more trust. The
employees are also not able to tolerate the salary
crisis and the slipping market share leads the more
difficulties.
Promoter Vijay Malya has to decide the way
ahead. Whether is it possible to save the company?
There are very few alternatives. As per the previous
news, Etihad Airways was interested in investing in
Kingfisher by providing equity in exchange for a
stake in the airline. Also involved in the talks was the
International Airlines Group, owner of British flag
carrier British Airways and Spanish flag carrier
Iberia. But the question is the permission by
Government. So at present there is very tough
situation for Vijay Malya and for the company. Will
new fiscal year bring any solution for the company?
Lets wait and watch.
QUESTION FOR DISCUSSION:
1. Is the Problem of Kingfisher Airlines Industry
Specific or Company Specific?
2. What is the Impact of High Level of Debt on the
operating performance of company?
3. Should Government bailout Kingfisher Airlines?
4. According to you, what are the possible ways for
the company to overcome this situation?
TEACHING NOTES
1. The purpose of the case is to make the students
aware about the situation of financial crisis in
any organisation.
2. The issues involved in the case are about the
financial turmoil and its effects on the business
and market share of the company.
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BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 89
FROZEN BANK ACCOUNTS:
On March 3, 2012, The Central Board of
Excise & Customs of India froze many more
Kingfisher accounts as it was unable to pay all the
dues as per schedule. Kingfisher was meant to pay
1 crore per working day. Aviation minister Ajit Singh
warned the airline about the temporary suspension of
the license until the crisis was sorted out. He
announced that the rest of the airline's fleet would be
grounded and all flights cancelled until the crisis
came to an end. This would be only one step from
permanently closing the airline.
IATA SUSPENSION:
On March 7, 2012 IATA suspended ticket
sales of Kingfisher airlines citing non-payment of
dues as the primary reason, and they said that sales
services will only be restored once Kingfisher settles
ICH (IATA Clearing House) account. IATA also
immediately directed all travel agents to stop booking
tickets for Kingfisher. This would affect Kingfisher's
business by around 30%. Kingfisher claimed that
frozen bank accounts was the main cause of being
unable to pay the IATA, and the airline started
making alternate arrangements for the sale of tickets.
Soon it became difficult for the airline to follow the
much smaller schedule that it earlier released as even
more pilots began to go on strike.
UNCERTAINTY AHEAD:
After analysing the entire scenario, there are
strong possibilities of more difficult situation in the
last month of fiscal year 2011-12. The company is in
dilemma of finding help, but from where?
Government has refused for bailing and all the
lenders and bankers have no more trust. The
employees are also not able to tolerate the salary
crisis and the slipping market share leads the more
difficulties.
Promoter Vijay Malya has to decide the way
ahead. Whether is it possible to save the company?
There are very few alternatives. As per the previous
news, Etihad Airways was interested in investing in
Kingfisher by providing equity in exchange for a
stake in the airline. Also involved in the talks was the
International Airlines Group, owner of British flag
carrier British Airways and Spanish flag carrier
Iberia. But the question is the permission by
Government. So at present there is very tough
situation for Vijay Malya and for the company. Will
new fiscal year bring any solution for the company?
Lets wait and watch.
QUESTION FOR DISCUSSION:
1. Is the Problem of Kingfisher Airlines Industry
Specific or Company Specific?
2. What is the Impact of High Level of Debt on the
operating performance of company?
3. Should Government bailout Kingfisher Airlines?
4. According to you, what are the possible ways for
the company to overcome this situation?
TEACHING NOTES
1. The purpose of the case is to make the students
aware about the situation of financial crisis in
any organisation.
2. The issues involved in the case are about the
financial turmoil and its effects on the business
and market share of the company.
EISSN 2277-4955
BAUDDHIK VOLUME 3, NO.-1, JAN-APRIL-2012 89
FROZEN BANK ACCOUNTS:
On March 3, 2012, The Central Board of
Excise & Customs of India froze many more
Kingfisher accounts as it was unable to pay all the
dues as per schedule. Kingfisher was meant to pay
1 crore per working day. Aviation minister Ajit Singh
warned the airline about the temporary suspension of
the license until the crisis was sorted out. He
announced that the rest of the airline's fleet would be
grounded and all flights cancelled until the crisis
came to an end. This would be only one step from
permanently closing the airline.
IATA SUSPENSION:
On March 7, 2012 IATA suspended ticket
sales of Kingfisher airlines citing non-payment of
dues as the primary reason, and they said that sales
services will only be restored once Kingfisher settles
ICH (IATA Clearing House) account. IATA also
immediately directed all travel agents to stop booking
tickets for Kingfisher. This would affect Kingfisher's
business by around 30%. Kingfisher claimed that
frozen bank accounts was the main cause of being
unable to pay the IATA, and the airline started
making alternate arrangements for the sale of tickets.
Soon it became difficult for the airline to follow the
much smaller schedule that it earlier released as even
more pilots began to go on strike.
UNCERTAINTY AHEAD:
After analysing the entire scenario, there are
strong possibilities of more difficult situation in the
last month of fiscal year 2011-12. The company is in
dilemma of finding help, but from where?
Government has refused for bailing and all the
lenders and bankers have no more trust. The
employees are also not able to tolerate the salary
crisis and the slipping market share leads the more
difficulties.
Promoter Vijay Malya has to decide the way
ahead. Whether is it possible to save the company?
There are very few alternatives. As per the previous
news, Etihad Airways was interested in investing in
Kingfisher by providing equity in exchange for a
stake in the airline. Also involved in the talks was the
International Airlines Group, owner of British flag
carrier British Airways and Spanish flag carrier
Iberia. But the question is the permission by
Government. So at present there is very tough
situation for Vijay Malya and for the company. Will
new fiscal year bring any solution for the company?
Lets wait and watch.
QUESTION FOR DISCUSSION:
1. Is the Problem of Kingfisher Airlines Industry
Specific or Company Specific?
2. What is the Impact of High Level of Debt on the
operating performance of company?
3. Should Government bailout Kingfisher Airlines?
4. According to you, what are the possible ways for
the company to overcome this situation?
TEACHING NOTES
1. The purpose of the case is to make the students
aware about the situation of financial crisis in
any organisation.
2. The issues involved in the case are about the
financial turmoil and its effects on the business
and market share of the company.
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3. The case would be first given for individual
reading for 15 min and then for 15 min the case
can be discussed in groups of 4-5 students.
4. The case can be taught along with the concepts
like ways to overcome the crisis and surviving
strategies required to save the organisation
keeping in mind the possible different options
available.
5. The students can come prepared with topics of
prevailing crisis in Indian aviation industry and
other factors related to the aviation industry in
detail.
6. Cross reference can be made taking into account
the strategies used by the local, national and
international players to capture the slipping
market of the falling organisation.
REFERENCES:
http://www.flykingfisher.com/media-
center/press-releases/kingfisher-airlines-
announcement.aspx
http://in.finance.yahoo.com/news/kingfisher-
airlines-q3-loss-widens-033419822.html
http://timesofindia.indiatimes.com/india/Kingfi
sher.../12258986.cms
http://articles.economictimes.indiatimes.com/2
011-12-08/news/30490358_1_pilots-industrial-
action-kingfisher airlines
http://profit.ndtv.com/News/Article/aai-warns-
kingfisher-airlines-to-settle-dues-297284
http://articles.economictimes.indiatimes.com/2
010-09-26/news/27585421_1_cash-and-carry-
mode-bpcl-s
chairman-kingfisher-airlines
http://timesofindia.indiatimes.com/business/india-
business/Kingfisher-may-have-to-weather-pilot-
storm-next/articleshow/12214372.cms
Annexure 1: Market share of Kingfisher Airlines as on January 2012 in the domestic Aviation
Airline/Company % Share
Jet Airways (Including Jet Lite) 28.8%
Indigo 20.8%
Air India 17.1%
Spice Jet 16.3%
Kingfisher 11.3%
Go Air 5.8%
Source: http://in.finance.yahoo.com/news/kingfisher-airlines-q3-loss-widens-033419822.html
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Annexure 2: Price Movement and Performance Charts of Kingfisher Airlines
Annexure 3: Index Comparison and Ownership Pattern of Kingfisher Airlines
Source:http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=532747
Annexure 4: Comparative Balance Sheet of Kingfisher Airlines [Rs. In crores]
Sources Of Funds Mar '11 Mar '10 Mar '09 Mar '08 Jun '07 Jun '06 Mar05
Total Share Capital 1,050.88 362.91 362.91 135.80 135.47 98.18 16.20
Equity Share Capital 497.78 265.91 265.91 135.80 135.47 98.18 16.20
Share Appl. Money 2.95 7.48 8.11 10.09 0.00 0.00 0.00
Pref. Share Capital 553.10 97.00 97.00 0.00 0.00 0.00 0.00
Reserves -4,005.02 -4,268.84 -2,496.36 52.99 249.23 125.95 -2.54
Net worth -2,951.19 -3,898.45 -2,125.34 198.88 384.70 224.13 13.66
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Secured Loans 5,184.53 4,842.43 2,622.52 592.38 716.71 448.16 159.42
Unsecured Loans 1,872.55 3,080.17 3,043.04 342.00 200.00 3.50 125.06
Total Debt 7,057.08 7,922.60 5,665.56 934.38 916.71 451.66 284.48
Total Liabilities 4,105.89 4,024.15 3,540.22 1,133.26 1,301.41 657.79 298.14
Application Of Funds
Gross Block 2,254.26 2,048.14 1,891.80 322.33 340.77 247.33 55.25
Less: Accum. Dep. 682.37 493.62 316.29 43.55 33.74 16.40 4.52
Net Block 1,571.89 1,554.52 1,575.51 278.78 307.03 230.93 50.73
Capital WIP 673.35 980.61 1,630.95 346.25 357.62 286.53 153.09
Investments 0.05 0.05 0.05 0.00 0.41 0.41 0.45
Inventories 187.65 164.88 147.25 48.64 61.62 57.26 36.40
Sundry Debtors 440.53 322.49 229.84 27.16 35.24 13.06 8.27
Cash & Bank Bal. 88.18 50.91 49.41 5.84 422.05 181.17 47.08
Total CA 716.36 538.28 426.50 81.64 518.91 251.49 91.75
Loans & Adv. 5,380.19 4,604.31 3,640.42 832.49 149.77 232.03 47.28
FDs 164.18 155.56 122.45 274.29 395.00 75.31 35.85
CA, Loans & Adv. 6,260.73 5,298.15 4,189.37 1,188.42 1,063.68 558.83 174.88
Current Liabilities 4,463.86 3,908.03 3,814.63 687.31 449.15 434.05 108.77
Provisions 62.11 46.77 45.55 9.52 6.94 5.93 1.07
Total CL & Prov. 4,525.97 3,954.80 3,860.18 696.83 456.09 439.98 109.84
Net Current Assets 1,734.76 1,343.35 329.19 491.59 607.59 118.85 65.04
Misc. Expenses 125.84 145.64 4.51 16.64 28.75 39.08 28.83
Total Assets 4,105.89 4,024.17 3,540.21 1,133.26 1,301.40 675.80 298.14
Source:http://www.moneycontrol.com/financials/kingfisherairlines/balancesheet/KA02#KA02
Annexure 5: Comparative P&L A/c of Kingfisher Airlines [Rs. In crores]
Income Mar '11 Mar '10 Mar '09 Mar '08 Jun '07 Jun06 Mar05
Net Sales 6,233.38 5,067.92 5,269.17 1,456.28 1,800.21 1285.42 305.55
Other Income 81.58 -333.30 598.90 113.62 342.10 59.64 14.73
Total Income 6,314.96 4,734.62 5,868.07 1,569.90 2,142.31 1345.06 320.28
Expenditure
Raw Materials 56.69 40.89 51.19 43.79 45.94 36.73 5.77
Power & Fuel Cost 2,274.03 1,802.99 2,602.62 889.30 979.50 625.45 92.98
Employee Cost 680.54 689.38 825.42 244.96 247.72 163.04 31.76
Other Manu. Exp. 1,192.80 1,108.82 1,112.85 408.21 617.56 425.48 104.78
Sell. & Admn Exp. 997.34 996.85 1,062.74 180.39 146.78 114.38 29.13
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Misc. Exp. 87.94 108.58 167.55 14.81 25.11 33.78 9.85
Total Expenses 5,289.34 4,747.51 5,822.37 1,781.46 2,062.61 1398.86 274.27
PBDIT 1,025.62 -12.89 45.70 -211.56 79.70 -53.80 46.01
Interest 2,340.32 2,245.59 2,029.33 434.44 466.05 250.72 55.33
PBDT -1,314.70 -2,258.48 -1,983.63 -646.00 -386.35 -304.52 -9.32
Depreciation 203.02 162.80 133.20 18.28 17.67 13.34 3.06
Other Written Off 38.01 54.49 38.39 18.31 26.25 18.94 5.73
Profit Before Tax -1,555.73 -2,475.77 -2,155.22 -682.59 -430.27 -336.80 -18.11
Extra-ordinary items 72.99 31.28 0.00 -0.97 14.09 0.00 -2.74
Tax -455.35 -700.00 -546.38 -494.45 3.40 3.75 -1.32
Reported Net Profit -1,027.40 -1,647.22 -1,608.83 -188.14 -419.58 -340.55 -16.79
Per share data (annualised)
Shares in issue (lakhs) 4,977.79 2,659.09 2,659.09 1,357.99 1,354.70 981.82 31.06
EPS (Rs) -20.64 -61.95 -60.50 -13.85 -30.97 -34.69 -54.05
Equity Dividend (%) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Book Value (Rs) -70.46 -150.54 -83.88 13.90 28.40 22.83 43.96
Source: http://www.moneycontrol.com/financials/kingfisherairlines/profit-loss/KA02#KA02