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THE KING WITHOUT FISHES...!!!
[CASE ON CRISIS OF KINGFISHER AIRLINES]
Prof. Bhavik M. Panchasara
Marwadi Education Foundation’s 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: The airline has been facing financial issues for many
Kingfisher Airlines is an airline group based in India. years. Till December 2011; Kingfisher Airlines had
Its head office is The Qube in Andheri (East), the second largest share in India's domestic air travel
Mumbai; and Registered Office in UB City, market. However due to the severe financial crisis
Bangalore. Kingfisher Airlines was established in faced by the airline, it has the fifth largest market
2003. It is owned by the Bengaluru based United share currently, only above Go Air. Kingfisher
Breweries Group. Kingfisher Airlines, through its Airlines is one of the only seven airlines awarded 5-
parent company United Breweries Group, has a 50% star rating by Skytrax along with Cathay Pacific,
stake in low-cost carrier Kingfisher Red. The airline Qatar Airways, Asiana Airlines, Malaysia Airlines,
started commercial operations in 9 May 2005 with a Singapore Airlines, and Hainan Airlines. Kingfisher
fleet of four new Airbus A320-200s operating a flight operates 250 daily flights with regional and long-haul
from Mumbai to Delhi. It started its international international services. In May 2009, Kingfisher
operations on 3 September 2008 by connecting Airlines carried more than 1 million passengers,
Bengaluru with London. 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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STARTING OF THE CRISES: suffered a loss of over Rs. 1,000 crore for three
executive years. By early 2012, the airline
Ever since the airline commenced operations in 2005, accumulated the losses of over Rs. 7,000 crore with
the company is reporting the losses. But the situation half of its fleet grounded and several members of its
became more horrible after acquiring the Air Deccan staff going on strike. Following table 1 highlights
in 2007. After acquiring the Air Deccan, the company 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: CRISIS TILL CONTINUE:
In the situation of loss and tough financial Debt restructuring also couldn’t change the
condition, the company went for more loans. Table 1 game. By restructuring, company had reduced the
shows the portion of secured and unsecured loans interest charges by Rs. 500 crores every year, but due
taken by the company. Due to heavy burden of debt to the high leverage condition and increase in cost,
and interest, in November 2010, the company the company started to face the liquidity problem.
adopted the way of debt restructuring and under that The company had no funds in hand and it created the
total 18 leading lenders, those have landed total Rs. following payment problems.
8,000 crores, agreed to cut interest rates and convert
part of loans to equity. As per the contract, lenders DELAYED SALARY:
have converted Rs. 650 crores debt into preference
shares which will be converted into equity when the Kingfisher Airline has staff strength of 6,000
company lists the on the Luxembourg Stock and spends 58 crore on salaries a month. According
Exchange by selling global depositary receipts to the first quarter financial results, it has 173.66
(GDR). Shares will be converted into ordinary equity crore under the employees cost head, which has
at the price at which the GDRs are sold to investors. increased from 163.40 crore during the same
Besides the 1,400 crore debt which will be quarter last year. Kingfisher Airlines delayed salaries
converted into preference shares, another 800 crore of its employees in August 2011, and for four months
debt has been converted into redeemable shares for in succession from October 2011 to January 2012.
12 years. Due to debt restructuring, the company able Kingfisher also defaulted on paying the Tax
to down the average interest rate to 11% and to save Deducted at Source from the employee income to the
Rs. 500 crores every year in interest cost. tax department.
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FUEL DUES: denied that it missed the payments. GECAS had
filed a complaint with DGCA saying Kingfisher
In the past several years, Kingfisher airlines had defaulted on rentals for four A320 aircraft,
had trouble paying their fuel bills. Due non-payment, and sought repossession of the planes. In Jan
several Kingfisher's vendors had filed winding up 2009, The Karnataka High Court rejected
petition with the High Court. As on Nov 2011, petition by Kingfisher Airlines to restrain
winding up petition of seven creditors was pending GECAS from taking any step to deregister and
before the Bangalore High Court. In the past repossess the 04 aircraft in dispute. As a result,
Lufthansa Technik & Bharat Petroleum Corporation Kingfisher had to return the A320 aircraft to
Limited (BPCL) had also filed winding up petition GECAS.
against Kingfisher Airlines. Here are some cases:
 DVB: In Jul 2010, DVB Aviation Finance Asia
 HPCL: In Jul 2011, Hindustan Petroleum Ltd (a lessor from Singapore), sued Kingfisher
Corporation Limited (HPCL) stopped the fuel Airlines for lease rental default. Case was filed in
(ATF) supplies for about two hours to Kingfisher a UK court on Jul 16, 2010 after Kingfisher did
airlines owing to the non-payment of dues. not pay for three month lease rental for A320
Situation was later resolved. aircraft it leased from DVB.
 BPCL: Bharat Petroleum Corporation in 2009
had filed a case against Kingfisher airlines for AAI REPORTS:
non-payment of dues. High court in an order said
that the entire amount 245 crore had to be paid Kingfisher received a notice from the
by Nov 2010 and the airline paid it in Airports Authority of India on February 2012
instalments. regarding accumulated dues of 255.06 crore. The
airline was operating on a cash and carry basis for the
AIRCRAFT LEASE RENTAL DUES: last six months, with daily payments amounting to
0.8 crore.
Since 2008, it has been reported that
Kingfisher Airlines has been unable to pay the SERVICE TAX:
aircraft lease rentals on time. Due to that, the
Kingfisher Airlines has grounded 15 out of 66 aircraft On 9 December 2011, S.K. Goel, chairman,
in its fleet as it was unable to meet the maintenance Central Board of Excise and Customs (CBEC)
and overhaul expenses. Here are the some major announced that CBEC is considering legal action
issues with: against Kingfisher for not paying service tax. As on
10th Jan 2012, Kingfisher Airlines has service tax
 GECAS: In Nov 2008, GE Commercial Aviation arrears of 70 crore. The Ministry of Finance has
Services threatened to repossess 04 leased planes given a concession to Kingfisher and instructed them
in lieu of default. Kingfisher Airlines initially to pay the dues by 31st Mar 2012. In Jan 2012,
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Kingfisher paid 20 crore towards its dues for operational by February 20. With this, Kingfisher's
December 2011 and part of the arrears. market share clearly dropped to 11.3%. The
cancellation of the flights was accompanied by a
BANK ARREARS: 13.5% drop in the stocks of the company on 20
February 2012. The CEO of the airlines, Sanjay
Kingfisher Airlines had not paid some Agarwal was summoned by the Directorate General
bankers (Lenders) as per the Debt Recast Package of Civil Aviation to explain the disruptions of the
(DRP) with lending banks. Till the end of Dec 2011, operations.
the arrears were estimated to be 260 crore to 280 The State Bank of India, which is the lead
crore. Lenders hence had told Kingfisher Airlines to lender to Kingfisher airlines said that they would not
clear its dues before they can release any more money consider giving any more loans to Kingfisher unless
sought by the Airline. Ravi Nedungadi, chief and until it comes up with a new equity by itself.
financial officer of UB Group however said that the Political activists also claimed that bailing or helping
arrears were 180 crore. State Bank of India (SBI) on a private airline would lead to problems within the
5th Jan 2012 declared Kingfisher Airlines a NPA. Government. By February 27, Kingfisher operated
SBI is largest creditor and the leader of the only above 150 out of its 400 flights and only 28
consortium of banks in the DRP (Debt Recast aircraft were functional. Reuters reported that if
Package) and has an exposure of 1,457.78 crore. Kingfisher were to shutdown, it would be the biggest
Thus, by Feb 2012, Kingfisher has been declared failure in the History of Indian Aviation. It was
NPA by following banks: announced that the direct flights to the smaller
airports of Jaipur, Thiruvananthapuram, Nagpur and
State Bank of India also to Hyderabad's Rajiv Gandhi International
Bank of Baroda Airport were all shut down and only one/two-stop
Punjab National Bank flights from its main hubs of Delhi and Mumbai
IDBI would operate.
Central bank of India In response to a situation as bad as
Bank of India bankruptcy, Vijay Mallya announced that he had
Corporation Bank organized funds to pay all the employees' overdue
salaries. With bank accounts frozen and huge debts
THE CRISIS CONTINUE: due, it is unknown so as from where he arranged the
money. But he apologized to his workers and said
During late February, 2012, Kingfisher that he would pay them immediately. By this time,
Airlines started to sink into a fresh crisis. Several kingfisher had accumulated losses of 444 crore
flights were cancelled and aircraft were grounded. during the third quarter of the fiscal year 2011-12.
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
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FROZEN BANK ACCOUNTS: Government has refused for bailing and all the
lenders and bankers have no more trust. The
On March 3, 2012, The Central Board of employees are also not able to tolerate the salary
Excise & Customs of India froze many more crisis and the slipping market share leads the more
Kingfisher accounts as it was unable to pay all the difficulties.
dues as per schedule. Kingfisher was meant to pay Promoter Vijay Malya has to decide the way
1 crore per working day. Aviation minister Ajit Singh ahead. Whether is it possible to save the company?
warned the airline about the temporary suspension of There are very few alternatives. As per the previous
the license until the crisis was sorted out. He news, Etihad Airways was interested in investing in
announced that the rest of the airline's fleet would be Kingfisher by providing equity in exchange for a
grounded and all flights cancelled until the crisis stake in the airline. Also involved in the talks was the
came to an end. This would be only one step from International Airlines Group, owner of British flag
permanently closing the airline. carrier British Airways and Spanish flag carrier
Iberia. But the question is the permission by
IATA SUSPENSION: Government. So at present there is very tough
situation for Vijay Malya and for the company. Will
On March 7, 2012 IATA suspended ticket new fiscal year bring any solution for the company?
sales of Kingfisher airlines citing non-payment of Let’s wait and watch.
dues as the primary reason, and they said that sales
services will only be restored once Kingfisher settles QUESTION FOR DISCUSSION:
ICH (IATA Clearing House) account. IATA also
immediately directed all travel agents to stop booking 1. Is the Problem of Kingfisher Airlines Industry
tickets for Kingfisher. This would affect Kingfisher's Specific or Company Specific?
business by around 30%. Kingfisher claimed that 2. What is the Impact of High Level of Debt on the
frozen bank accounts was the main cause of being operating performance of company?
unable to pay the IATA, and the airline started 3. Should Government bailout Kingfisher Airlines?
making alternate arrangements for the sale of tickets. 4. According to you, what are the possible ways for
Soon it became difficult for the airline to follow the the company to overcome this situation?
much smaller schedule that it earlier released as even
more pilots began to go on strike. TEACHING NOTES
UNCERTAINTY AHEAD: 1. The purpose of the case is to make the students
aware about the situation of financial crisis in
After analysing the entire scenario, there are any organisation.
strong possibilities of more difficult situation in the 2. The issues involved in the case are about the
last month of fiscal year 2011-12. The company is in financial turmoil and its effects on the business
dilemma of finding help, but from where? and market share of the company.
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3. The case would be first given for individual other factors related to the aviation industry in
reading for 15 min and then for 15 min the case detail.
can be discussed in groups of 4-5 students. 6. Cross reference can be made taking into account
4. The case can be taught along with the concepts the strategies used by the local, national and
like ways to overcome the crisis and surviving international players to capture the slipping
strategies required to save the organisation market of the falling organisation.
keeping in mind the possible different options
available. REFERENCES:
5. The students can come prepared with topics of
prevailing crisis in Indian aviation industry and
http://www.flykingfisher.com/media- http://profit.ndtv.com/News/Article/aai-warns-
center/press-releases/kingfisher-airlines- kingfisher-airlines-to-settle-dues-297284
announcement.aspx http://articles.economictimes.indiatimes.com/2
http://in.finance.yahoo.com/news/kingfisher- 010-09-26/news/27585421_1_cash-and-carry-
airlines-q3-loss-widens-033419822.html mode-bpcl-s
http://timesofindia.indiatimes.com/india/Kingfi chairman-kingfisher-airlines
sher.../12258986.cms http://timesofindia.indiatimes.com/business/india-
business/Kingfisher-may-have-to-weather-pilot-
http://articles.economictimes.indiatimes.com/2
storm-next/articleshow/12214372.cms
011-12-08/news/30490358_1_pilots-industrial-
action-kingfisher airlines
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 Mar’05
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 Jun’06 Mar’05
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
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