KINGFISHER AIRLINES CRISIS

Indian Aviation Sector

Passenger growth in India has slowed to 8-10% for the past two months, annual growth has been ticking at around 20% in recent years. Indians are not brand conscious but cost conscious.

9/19/2012

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has a 50% stake in low-cost carrier Kingfisher Red. It started its international operations on 3 September 2008 by connecting Bengaluru with London.HISTORY (1/2)  Kingfisher Airlines was established in 2003. through its parent company United Breweries Group. The airline started commercial operations on 9th May 2005 with a fleet of four new Airbus A320-200s operating a flight from Mumbai to Delhi.    Kingfisher Airlines. It is owned by the United Breweries Group. 9/19/2012 3 .

  9/19/2012 4 . Kingfisher Airlines carried more than 1 million passengers.   In May 2009. Kingfisher operates 250 daily flights with regional and long-haul international services.(2/2)  Kingfisher Airlines is one of the only seven airlines awarded 5-star rating by Skytrax . giving it the highest market share among airlines in India. Kingfisher also won the Skytrax award for India's best airline of the year 2011 Currently they own a fleet of 67 planes.

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 He suggested not to go into sector which needs regular infusion of funds.  9/19/2012 6 . CFO of UB Group.CRISIS  Ravi Nedungadi. warned Vijay Mallya of the perils of entering the aviation business in 2005 – the year Kingfisher Airlines was launched. Since inception in 2005 it has never made profits.

9/19/2012 7    . Shifting its international operations base from Bangalore to Mumbai It was the sole Indian carrier offering wide body services in Bangalore Mumbai– the home base of both Jet Airways and Air India.“A me too approach” kingfisher tried to copy the network of arch rivals “Jet Airways”.The Reason:  No Network Planning.

he said. Also other demands of Mallya met by the new ministry  9/19/2012 8 .Political Reason  Kingfisher was "no exception to the current problems facing the aviation industry". 49% FDI by Ajit Singh. high jet fuel prices and weakening rupee.

 KPMG. L&T. Hindustan Unilever. PwC.  9/19/2012 9 . compared with a fleet of 64 in September. Mahindra and Reliance Industries are looking to ditch Kingfisher for an alternate carrier Kingfisher is left with only 28 planes.

fuel prices It has a total debt of Rs.pilots. 9/19/2012 10   . janitors. stewardesses. Kingfisher airlines could not pay. 7000 cr.CRISIS 1/5  It started in the month of November. 1400 cr. was kind of written off last year. The airline made an operational loss of Rs 1027 crore losses over the last year operation. even after about Rs.

 9/19/2012 11 . 5.690 cr. a small matter of Rs. 2/5  It owes a sum total of approximately Rs 890 crores to all its fuel suppliers  This has led the fuel supplier to put kingfisher on a cash and carry basis BPCL has even filed a court case for recovery on unpaid dues of over 250 cr. And the loss since its inception in 2003.

undisclosed landing charges Their cheque of Rs. 151 crores to clear the dues recently bounced further worsening the situation Bangalore and the Hyderabad airports have decided to ask Kingfisher for landing charges before they allow the KF planes to land 9/19/2012 12   .(3/5)  It owes the Airports Authority of India.

(4/5) It has absolutely no assets that it can sell or mortgage. the mainstay of its short haul flights due to non payment of lease amount.  All its aircraft are currently leased of which kingfisher had to return 5 ATR aircraft. increased to a total of 19. the sum total of aircraft returns since 2009 due to nonpayment of rent.  With that.  9/16/2012 13 .

Management claimed that the losses are due to hostile economic climate and high ATF.(5/5)  There is further aircrafts recalls by the lessors due to rental defaults. Kingfisher has been a loss-making entity since the day Mallaya announced its launch in 2003   9/19/2012 14 .

5 0 Jun-07 Mar-08 Debt/Equity Ratio Debt to equity Ratio of KFA = 3.5 1 0.Debt to Equity Debt/Equity Ratio 4 3.15 times 9/19/2012 15 .5 2 1.5 3 2.

approximately Rs 750 cr. The bankers converted. In lieu of the waive off The banks got a 23% stake in the airline.BAILOUT ATTEMPT ANALYSIS   At the time of restructuring. to equity. 9/19/2012 16   . To reduce that. Kingfisher’s total debt was Rs 8.414 cr. banks decided to convert some of it to equity to give Mallya a breather.

  9/19/2012 17 . however the real share price were 39. but Rs. was not Rs. 750 cr.48.90.  Transaction was done.Cont. 116 million KFA shares. Mr Mallya was given an incredible premium of 61% per share in his failing company. The actual value of that Rs. with each KFA share being valued at Rs 64. 464 cr.

in this transaction..  Hence the banks lost about 300 cr.Cont. Banks expected share price to rise  9/19/2012 18 .

As of by 15 Feb 2012 Kingfisher stock price has nosedived to Rs. due to this nosedive Banks involved have already lost at least Rs 450 cr. 9/19/2012 19    .26. to approximately Rs.300 cr.Cont. KFA stocks that the banks have. 47.  Highest stock price of KFA were Rs.75.

9/19/2012 20   .Cont. Hence total accumulated loss to banks 900 cr.  To mitigate the risk banks also asked the parent company to take the same deal Issued 100 million shares (648 cr) to UB group whose value stood at 260 cr by 15 feb 2012.

9/19/2012 21   .. to keep his airline afloat.000 cr.5% on the left debt Causing 150-180 cr.Cont.  Further banks reduced the interest rate by 2. losses to bank in terms of interest on loan Mallya was also given additional term loans of Rs 1.

of debt was converted to Compulsorily Redeemable Preference Shares (CRPS) To be returned at a later date. In addition to that. 9/19/2012 22    . But that amount would not be reflected in KFA’s debt column. Rs 553 cr.Debt recast  Banks took up a 23% stake in KFA it was in the form of Compulsorily Convertible Preference Shares (CCPS).

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Possible Solutions 9/19/2012 24 .

9/19/2012 25    .Cont…  Find a strategic partner with significant hunk of cash Forced to undergo a wind up that entails to liquidation of corporate assets to payoff its liabilities. Corporate debt restructuring American Style Bankruptcy system.

Mallya. including International Airlines Group (IAG). who controls 58 per cent of Kingfisher. Kingfisher Airlines. told 'The Times' that he had secured provisional approval from the Indian government for a change in the law that would ease restrictions on foreign ownership of airlines. is in talks with two foreign carriers.  9/19/2012 26 .

 It would allow overseas airlines to own up to 49 per cent of an Indian airline for the first time. the UAE-based airline discussed a tie-up This could pave the way for IAG to take a minority stake in KFA 9/19/2012 27   . Etihad.

 As some(67%) of the carriers has already been grounded and that has resulted the airfares to shoot up.  9/19/2012 28 . Only 24 planes are in operation out of 67.Cont… There is huge possibility that the government would bail out the airlines as kingfisher airlines constitute around 16% of the total Indian fleet and holds 18% domestic passenger shares.

Thank you King of good times!! Is it? .

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