Financial turmoil & the Arab spring:Factors Influencing Economic Freedom
Kingfisher Financial Turmoil
Transcript of Kingfisher Financial Turmoil
-
7/29/2019 Kingfisher Financial Turmoil
1/27
Companys ProfileKingfisher Airlines
IATA
IT
ICAO
KFR
Callsign
KINGFISHERFounded 2004
Hubs
Bangalore International
Airport,
Chhatrapati Shivaji
International Airport,
Indira Gandhi
International Airport,
Sardar Vallabhbhai Patel
International Airport
Frequent flyer program King Club
Fleet size 158 (incl. 126 in order)
Destinations 29
Parent company UB Group
Company slogan Fly The Good Times
Headquarters Bangalore, India
Key people
Dr. Vijay Mallya, CMD
Mr. Hitesh Patel, EVP
Mr. Rajesh Verma, EVP
Mr.A. Raghunathan, CFO
Website: http://www.flykingfisher.com/
http://en.wikipedia.org/wiki/IATA_airline_designatorhttp://en.wikipedia.org/wiki/ICAO_airline_designatorhttp://en.wikipedia.org/wiki/Airline_call_signhttp://en.wikipedia.org/wiki/Airline_hubhttp://en.wikipedia.org/wiki/Bangalore_International_Airporthttp://en.wikipedia.org/wiki/Bangalore_International_Airporthttp://en.wikipedia.org/wiki/Chhatrapati_Shivaji_International_Airporthttp://en.wikipedia.org/wiki/Chhatrapati_Shivaji_International_Airporthttp://en.wikipedia.org/wiki/Indira_Gandhi_International_Airporthttp://en.wikipedia.org/wiki/Indira_Gandhi_International_Airporthttp://en.wikipedia.org/wiki/Sardar_Vallabhbhai_Patel_International_Airporthttp://en.wikipedia.org/wiki/Sardar_Vallabhbhai_Patel_International_Airporthttp://en.wikipedia.org/wiki/Frequent_flyer_programhttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Indiahttp://www.flykingfisher.com/http://en.wikipedia.org/wiki/Image:Kingfisher_Airlines_logo.gifhttp://www.flykingfisher.com/http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/wiki/Frequent_flyer_programhttp://en.wikipedia.org/wiki/Sardar_Vallabhbhai_Patel_International_Airporthttp://en.wikipedia.org/wiki/Sardar_Vallabhbhai_Patel_International_Airporthttp://en.wikipedia.org/wiki/Indira_Gandhi_International_Airporthttp://en.wikipedia.org/wiki/Indira_Gandhi_International_Airporthttp://en.wikipedia.org/wiki/Chhatrapati_Shivaji_International_Airporthttp://en.wikipedia.org/wiki/Chhatrapati_Shivaji_International_Airporthttp://en.wikipedia.org/wiki/Bangalore_International_Airporthttp://en.wikipedia.org/wiki/Bangalore_International_Airporthttp://en.wikipedia.org/wiki/Airline_hubhttp://en.wikipedia.org/wiki/Airline_call_signhttp://en.wikipedia.org/wiki/ICAO_airline_designatorhttp://en.wikipedia.org/wiki/IATA_airline_designator -
7/29/2019 Kingfisher Financial Turmoil
2/27
Introduction
Kingfisher Airline is a private airline based in Bangalore, India. The airline is
owned by Vijay Mallya of United Beverages Group. Kingfisher Airlines started its
operations on May 9, 2005 with a fleet of 4 Airbus A320 aircrafts. The airline
currently operates on domestic routes. The destinations covered by Kingfisher
Airlines are Bangalore, Mumbai, Delhi, Goa, Chennai, Hyderabad, Ahmedabad,
Cochin, Guwahati, Kolkata, Pune, Agartala, Dibrugarh, Mangalore and Jaipur.
In a short span of time Kingfisher Airline has carved a niche for itself. The airline
offers several unique services to its customers. These include: personal valet at
the airport to assist in baggage handling and boarding, accompanied with
refreshments and music at the airport, audio and video on-demand, with extra-
wide personalized screens in the aircraft and three-course gourmet cuisine.
Kingfisher Airlines currently operates with a brand new fleet of 8 Airbus A320
aircraft, 3 Airbus A319-100 aircraft and 4 ATR-72 aircraft. It was the first airline in
India to operate with all new aircrafts. Kingfisher Airlines is also the first Indian
airline to order the Airbus A380. UB holdings Ltd, has acquired 26% stake in the
budget airline Air Deccan and has option to buy further of 20% stake from the
secondary market.
http://en.wikipedia.org/w/index.php?title=UB_holdings_Ltd&action=edithttp://en.wikipedia.org/w/index.php?title=UB_holdings_Ltd&action=edithttp://en.wikipedia.org/wiki/Air_Deccanhttp://en.wikipedia.org/wiki/Air_Deccanhttp://en.wikipedia.org/wiki/Air_Deccanhttp://en.wikipedia.org/w/index.php?title=UB_holdings_Ltd&action=edit -
7/29/2019 Kingfisher Financial Turmoil
3/27
History
Kingfisher Airlines is a subsidiary of the UB Group, one of the largest beverage
companies in the world. The branding of the airline is linked to that of KingfisherBeer, Indias largest brewery.
The airline, which is headed by the charismatic Dr Vijay Mallya, took to the skies
in May 2005, and attracted attention for its high quality product with personal
inflight entertainment in every seat; custom interior designs for each aircraft; valet
assistance at airports and complimentary hot food and beverages. The airline
initially operated a single class service but subsequently introduced a highly
acclaimed First Class, allowing it to compete with Jet Airways for the high yield
corporate market. In addition to its A320 family aircraft used on domestic routes,
Kingfisher Airlines also operates ATR-72 turboprops on regional sectors.
Under current Indian regulations, which require airlines to operate 5 years
domestic service before being granted international rights, Kingfisher will not be
permitted to operate overseas until 2010. However, the airline has very clear
international ambitions, with an order book for 45 wide body aircraft, including
A330s, A340s, A350s and A380s.
-
7/29/2019 Kingfisher Financial Turmoil
4/27
In just over two years, Kingfisher Airlines has achieved a market share of 10% and
has one of the most aggressive expansion plans of all Indian carriers during 2007.
In Jun-07, it dramatically increased its influence in the market with the acquisition
of a 26% shareholding in Indias largest LCC, Air Deccan, for approximately
USD130 million, and an open offer for a further 20%. Through schedule
coordination and joint operations in ground handling, training, and maintenance,
the carriers are projecting annual cost savings of over USD70 million.
There will also be greater coordination between the two brands, with Air Deccan to
adopt the Kingfisher image in its logo and to switch to a red, rather than a blue
colour scheme. The combined Kingfisher/Deccan group has a market share of just
over 30% and a product range spanning from the price-sensitive, first-time flyer, to
the high yield business traveler, making it one of the key pillars of the airline
industry.
The airline which started its operation on 9th May2005, following the lease of 4
Airbus A320 aircraft. As of July 2007, Kingfisher operates only on domestic
routes, however it has announced plans to start flights to the USA with Airbus
A380 aircraft. The airline is owned by the United Beverages Group under the
leadership ofVijay Mallya(which also owns the popular Indian beerof the same
name). The airline promises to suit the needs of air travellers and to provide
reasonable air fares. Kingfisher Airlines' main "luxury" component is its In-Flight
Entertainment System, a first among Indian airlines . The airliners in-flight Mobile
Phone and Internet Services will be provided by OnAirstarting 2008 for longhaul
flights.
http://en.wikipedia.org/wiki/May_9http://en.wikipedia.org/wiki/May_9http://en.wikipedia.org/wiki/May_9http://en.wikipedia.org/wiki/May_9http://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/Airbus_A320http://en.wikipedia.org/wiki/Airbus_A320http://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Airbus_A380http://en.wikipedia.org/wiki/Airbus_A380http://en.wikipedia.org/wiki/Airbus_A380http://en.wikipedia.org/wiki/United_Beverages_Grouphttp://en.wikipedia.org/wiki/United_Beverages_Grouphttp://en.wikipedia.org/wiki/Vijay_Mallyahttp://en.wikipedia.org/wiki/Vijay_Mallyahttp://en.wikipedia.org/wiki/Kingfisher_(beer)http://en.wikipedia.org/wiki/Kingfisher_(beer)http://en.wikipedia.org/wiki/OnAirhttp://en.wikipedia.org/wiki/OnAirhttp://en.wikipedia.org/wiki/OnAirhttp://en.wikipedia.org/wiki/Kingfisher_(beer)http://en.wikipedia.org/wiki/Vijay_Mallyahttp://en.wikipedia.org/wiki/United_Beverages_Grouphttp://en.wikipedia.org/wiki/Airbus_A380http://en.wikipedia.org/wiki/Airbus_A380http://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/2007http://en.wikipedia.org/wiki/Airbus_A320http://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/May_9 -
7/29/2019 Kingfisher Financial Turmoil
5/27
Welcome Kingfisher Airlines!
Kingfisher Airlines commenced commercial operations on 9 May, with its maiden
service from Bangalore to Mumbai with 174-seat A320 aircraft.
Other details include:
Fleet: To operate a minimum of 33 aircraft within the next two years and 55 by
2010;
Fares: Bangalore-Mumbai fares are at least 35% lower than Indian Airlines andJet Airways;
Network:Bangalore-Mumbai frequency increased from two to three times daily
on 20 May. Bangalore-Delhi service commences on 6 June.
-
7/29/2019 Kingfisher Financial Turmoil
6/27
According to UB Group Chairman, Vijay Mallya, the airline plans to acquire 11
aircraft by December this year and buy one aircraft every month from January
2006. Dr. Mallya is optimistic about the prospects for the airline, which is targeting
Indias increasingly affluent middle large.
If you look at the emerging India, by 2010 there will be a new generation of
consumers of about 150 million. Who are these people? These are youngsters who
are earning money out of information technology, biotechnology,
entrepreneurs?people who have a much greater propensity to spend than when I
was young, said Dr Mallya.
Air Deccan Managing Director GR Gopinath welcomed Kingfisher, stating the
move would energise the market. According to Capt Gopinath, there is a
tremendous need for airline capacity as the requirement is huge.
Kingfisher Airlines has contracted Indian Airlines to operate government mandated
socio-economic routes on its behalf. Airlines operating on trunk routes in India are
obligated to operate a certain proportion of capacity to remote regions. This forms
part of a INR1.2 billion agreement with Indian Airlines for outsourcing of ground
handling and maintenance services for a minimum of two years.
Meanwhile, Kingfisher Airlines is offering 1,000 one-way tickets each day priced
at INR2,999 (USD69.20) on Mumbai-Bangalore service in May (travel dates not
disclosed), and 1,000 one-way tickets each day priced at INR4,999 on Bangalore-
Delhi service in June. The airline is seeking to launch Delhi-Mumbai service in
August 2005.
-
7/29/2019 Kingfisher Financial Turmoil
7/27
Archieves
The King Of Good Times has done it again: Is the World Ready? Kingfisher Airlines, American Express to lunch co branded card Kingfisher Airlines Open 2007 to feature Global Tennis Legends Kingfisher F1: Marketing, The Vijay Mallya way ICICI Bank and Kingfisher Airlines Launch Co-branded Credit Card Kingfisher Airlines and dishtv Form an Unprecedented Alliance in the
Indian Skies
Kingfisher Airlines to buy 26 percent in Air Deccan for US$135million
Kingfisher becomes first Indian customer for A380, A350, & A330 Mallya's Kingfisher Airlines Plans IPO In 2006 Kingfisher ties up with perfume brands in promotional offer
-
7/29/2019 Kingfisher Financial Turmoil
8/27
Kingfisher Airlines to buy 26 percent in Air Deccan
for US$135 million
United Breweries (Holdings) Ltd., which runs Kingfisher Airlines, is to buy 26
percent of Deccan Aviation Ltd, which operates the low-cost carrier Air Deccan,
for US$135 million.
Deccan will issue about 35 million shares at US$3.8 each to United Breweries
(Holdings), an 18 percent premium to Deccans closing price on Wednesday. UB
Group has paid an advance of US$36.82 million and the balance will be paid in
next four months.
UB Holdings, with its Kingfisher Airline, had been the natural ally for Air Deccan,
Capt. GR Gopinath, MD, Deccan Aviation said, adding that both airlines would
complement each other. He said, Keeping in mind various options we had, we felt
that in the long term vision of our company, the association with UB Holdings will
make enormous financial and operational sense where each others best practices
could be shared.
Air Deccan would continue to remain as an independent entity and pursue the low-
cost model. While Capt. Gopinath would be the Executive Chairman of Deccan
Aviation, Mr Mallya would be the Vice Chairman. Both would appoint six
directors each besides having six independent directors on the board, while the
board would appoint the Chief Executive Officer.
Air Deccans Chief Financial Officer Ramki Sundaram would be the acting CEO,
Capt. Gopinath reportedly said.
-
7/29/2019 Kingfisher Financial Turmoil
9/27
Some Strategies Adopted by Kingfisher Airlines
Kingfisher Airlines will not be a run-of-the mill Indian budget airline.
Kingfisher Airlines will be emphasizing on spunky, well-done interiors andtrained airhostesses.
Borrowing from the Kingfisher beer tagline of "The King of Good Times"the theme of "Fly the Good Times" is given to KFA.
Kingfisher is planning to capture the Indian budget airline market with thetwin engines of 'special flying experience' and 'value for money'. (Contests
like `Kingfisher flying face of the month' are on cards).
The Kingfisher airhostesses will be selected through a nationwide contest. The Kingfisher "Funliners" will have in-flight silent auctions for lifestyle
products and sales of packaged food and beverages.
The Kingfisher brand of exuberant, youthful and fast-paced image isleveraged(the brand recall).
Brand endorsement. Kingfisher Airline has roped in model Katrina Kaif toendorse the airline.
AIR Deccan has signed a non-poaching agreement with Kingfisher Airlinesto ensure that the two airlines do not poach each other's pilots.
-
7/29/2019 Kingfisher Financial Turmoil
10/27
The Challenges Ahead
Experts say that airlines compete primarily on three fortes - low fares,customer service and value-added services. While no-frillers fight the price
war, service is the main thing provided by their larger peers.
The critical factor will be (depending upon the model followed) the ability tokeep costs low & the offer of an on time service at an affordable price,
despite the infrastructure constraints, for survival.
The next issue to tackle is to properly position itself in the aviation market. The Indian customers are not that much mature as compared to their
American contemporaries. They will not pay more for just mere
entertainment or watching TV in a flight of one / one & half hour journey.
A certain amount of churn & turmoil for players who don't have the deeppockets (as happened in USA many smaller airlines with out deep pocketsfell by the wayside unable to sustain the predatory pricing techniques
adopted by their strong opponents).
The outdated Aviation rules in India which compels the low cost carriers toadd more to their operating cost, which could have been easily do away
with.
Taxes like passenger service fee (PSF = Rs. 221 on one seat) looksridiculous for a ticket worth Rs. 99.
-
7/29/2019 Kingfisher Financial Turmoil
11/27
SOME FUTURE STRATEGIES FOR KINGFISHER AIRLINES
Market Penetration Strategy Product Development
Market Development Strategy Diversification
Market Penetration Strategy (1st Quarter) Encouraging existing Customer to buy more Showing benefits for using
more (associating freebies/extra service/membership with primary offering). Try to look for foreign entrant's weakness (Virgin Atlantic is lacking in
Indian values & tastes).
Product Development (2nd Quarter) Seek additional distribution channels (More tie ups & collaboration: Try
seeking collaboration with international carriers, Bilateral discussions overseats and code-sharing between the carriers).
New product development. Market Development Strategy (3rd Quarter) Try to find out new customer group (Old-retired persons). Special offering for first time fliers. Diversification (4th Quarter) May go for other services like international flights etc. (concentric
diversification). May go for arrangement fashion shows (horizontal diversification). May go for other things, which can lure the youth.
-
7/29/2019 Kingfisher Financial Turmoil
12/27
FINANCIAL TURMOIL
Mounting Losses
Since inception, Kingfisher Airlines is yet to post profit on annual & total cost
basis. Following are YoY financial results of Kingfisher Airlines, all numbers are
in Indian rupee (INR) crore except EPS, which is in INR.
# From To Months Total Income Cost Net Profit EPS
01 Apr-05 Jun-06 15 1,352 1,689 -337 -68
02 Jul-06 Jun-07 12 2,142 2,562 -420 -42
03 Jul-07 Mar-08 09 1,546 1,734 -188 -11
04 Apr-08 Mar-09 12 5,577 7,186 -1,609 -55
05 Apr-09 Mar-10 12 5,271 6,918 -1,647 -54
06 Apr-10 Mar-11 12 6,496 7,523 -1,027 -16
07 Apr-11 Sep-11 06 3,410 4,142 -732 n/a
Total 78 25,793 31,754 -5,960
Debt Recast
In Nov 2010, Kingfisher Airlines has completed restructuring 8,000 crore
(US$1.52 billion) debt, with all 18 lenders agreeing to cut interest rates and convert
part of loans to equity.
Lenders have converted 650 crore (US$123.5 million) debt into preference shares
which will be converted into equity when the airline lists 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
http://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Indian_rupee -
7/29/2019 Kingfisher Financial Turmoil
13/27
the 1,400 crore (US$266 million) debt which will be converted into preference
shares, another 800 crore (US$152 million) debt has been converted into
redeemable shares for 12 years.
Airline's average interest rate is now down to 11%, helping the airline save 500
crore (US$95 million) crore every year on interest cost. Consortium of banks was
represented by SBI Capital Markets.
Kingfisher Airlines Ltd has informed BSE that the Board of Directors of the
Company at its meeting held on November 25, 2010, has approved a Debt Recast
Package (DRP) with lending banks, following a one-time relaxation inrestructuring guidelines sanctioned by the Reserve Bank of India. The salient
features of the DRP include:
1. Conversion of debt of up to 1,355 crore (US$257.45 million) from lendersinto share capital.[33]
2. Conversion of debt of up to 648 crore (US$123.12 million) from promotersinto share capital.
3. Reschedulement of repayment of the balance debt to lenders over 9 yearswith a moratorium of 2 years.
4. Reduction in interest rates.5. Sanction of additional fund and non-fund based facilities by the lenders.
While Board sanction has been received from several lenders, the same is shortly
expected from the others. The DRP is subject to execution of necessary
documentation.
In order to give effect to the DRP mentioned above, the Board of Directors at its
Meeting held on November 25, 2010, has resolved as follows, subject to the above
http://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-Debt_Recast-32http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-Debt_Recast-32http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-Debt_Recast-32http://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-Debt_Recast-32http://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crore -
7/29/2019 Kingfisher Financial Turmoil
14/27
approvals and subject to the approval of the shareholders and such other regulatory
and other approvals as may be required:
1. To issue and allot up to 57,50,00,000 (Fifty Seven Crores Fifty Lakhs only)8% Redeemable Cumulative Preference Shares of 10 (US$0.19) each
redeemable at par at the end of 12 years, to the members of the consortium
of lenders in consideration of the extinguishment of the amount due to the
members of the consortium of lenders under various loan facilities availed
by the Company.
2. To issue and allot up to 78,00,00,000/- (Seventy Eight Crores only) 7.5%Compulsorily Convertible Preference Shares of 10 (US$0.19) each to the
members of the consortium of lenders in consideration of the extinguishment
of the amount due to the members of the consortium of lenders under
various loan facilities availed by the Company.
3. To amend the terms and conditions of 97,00,000 (Ninety Seven Lakhs only)6% Redeemable Preference Shares of 100 (US$1.9) each issued to United
Breweries (Holdings) Ltd. (Promoter Company), inter alia, to convert these
shares to 9,70,00,000 (Nine Crores Seventy Lakhs only) 6% Compulsorily
Convertible Preference Shares of 10 (US$0.19) each.
4. To issue and allot up to an aggregate of 64,80,00,000/- (Sixty Four CroresEighty Lakhs only) 7.5% Compulsorily Convertible Preference Shares of
10 (US$0.19) each to United Breweries (Holdings) Ltd. and to Kingfisher
Finvest India Ltd. (Promoter Companies) in consideration of the
extinguishment of the amount due to United Breweries (Holdings) Ltd. and
Kingfisher Finvest India Ltd., from the Company.
5. To issue and allot up to 2,00,00,000/- (Two Crores only) 8% OptionallyConvertible Debentures of 100 (US$1.9) each to Star Investments Ltd. in
http://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollar -
7/29/2019 Kingfisher Financial Turmoil
15/27
consideration of the extinguishment of the amount due to Star Investments
Ltd. from the Company.
6. To issue and allot up to 3,00,00,000/- (Three crores only) 8% OptionallyConvertible Debentures of 100 (US$1.9) each to Margosa Consultancy Pvt.
Ltd. in consideration of the extinguishment of the amount due to Margosa
Consultancy Pvt. Ltd. from the Company.
7. To issue and allot up to 3,00,00,000/- (Three Crores only) 8% OptionallyConvertible Debentures of 100 (US$1.9) each to Redect Consultancy Pvt.
Ltd. in consideration of the extinguishment of the amount due to Redect
Consultancy Pvt. Ltd. from the Company.
Second Debt Recast
Kingfisher Airlines, in Nov 2011 was attempting for a second debt recast.
However second debt recast has been ruled out by Government of India. Minister
of state for Finance made a statement on 09th Dec 2011.
Brand Pledged
Kingfisher Airlines has pledged its brand as collateral with its lender consortium
for 4,100 crore (US$779 million). The brand valuation was done by Grant
Thorton in 2010[34]. Reportedly the Brand has been valued and loan raised worth
triple carriers market value.
Founders pledge entire stake
On July 6, 2011, pursuant to requirements prescribed under the Debt Recast
Package Kingfisher Airlines' founder companies, United Breweries (Holdings) Ltd
http://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-Second_Debt_Recast-33http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-Second_Debt_Recast-33http://en.wikipedia.org/w/index.php?title=United_Breweries_(Holdings)_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=United_Breweries_(Holdings)_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-Second_Debt_Recast-33http://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollar -
7/29/2019 Kingfisher Financial Turmoil
16/27
and Kingfisher Finvest Ltd, have pledged their entire stake in the airline with
certain of its lenders.
United Breweries (Holdings) Ltd held 199,598,555 shares (representing 40.1% of
total outstanding shares) in the airline and has pledged all the shares to lenders. At
the same time, Kingfisher Finvest Ltd held 63,478,570 shares (representing
12.75% of total outstanding shares) has pledged it's entire holding to the lenders.[37]
Delayed salary
Aug 2011: Kingfisher Airline has staff strength of 6,000 and spends 58 crore(US$11.02 million) on salaries a month. According to the first quarter financial
results, it has 173.66 crore (US$33 million) under the employees cost head, which
has increased from 163.40 crore (US$31.05 million) during the same quarter last
year.
Kingfisher Airlines has delayed salaries (for Jul 2011) of its employees in Aug
2011. The management stated that it does not have the money, and has not given
any date for the payment. Kingfisher airline had earlier stated that due to the bank
strike, the salaries could not be processed.
Employees were paid salaries on the 7th of every month. Earlier, the company used
to pay on the 31st.
Oct 2011: In the month of Oct 2011, salary payment for the month of Sep 2011 hadbeen delayed by Kingfisher Airlines. Salaries were normally credited to the
accounts of its employees on the 7th day of every month. It has also been alleged
that the tax company deducted from the salaries wasnt being paid to the tax
department.
http://en.wikipedia.org/w/index.php?title=Kingfisher_Finvest_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=United_Breweries_(Holdings)_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Kingfisher_Finvest_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-36http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-36http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-36http://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-36http://en.wikipedia.org/w/index.php?title=Kingfisher_Finvest_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=United_Breweries_(Holdings)_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Kingfisher_Finvest_Ltd&action=edit&redlink=1 -
7/29/2019 Kingfisher Financial Turmoil
17/27
Nov & Dec 2011: The airline could not pay salaries to it staff in November and
December 2011. In protest, Kingfisher pilots started making in-flight
announcements citing "It is their sense of duty towards the guest that is making
them fly despite not being paid salaries for the past two months". Pilots have also
said that they plan to wear black armbands while reporting for work.
Fuel (ATF) Dues
HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stoppedthe fuel (ATF) supplies for about two hours to Kingfisher airlines owing to the
non-payment of dues. Situation was later resolved.[41]In the past several years,
Kingfisher airlines has had trouble paying their fuel bills.
BPCL: Bharat Petroleum Corporation in 2009 had filed a case againstKingfisher airlines for non-payment of dues. High court in an order said that the
entire amount ( 245 crore (US$46.55 million)) had to be paid by Nov 2010 and
the airline paid it in instalments.
Aircraft lease rental default
Since 2008, it has been reported that Kingfisher Airlines has been unable to pay the
aircraft lease rentals on time.
GECAS: In Nov 2008, GE Commercial Aviation Services threatened torepossess 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
http://en.wikipedia.org/wiki/HPCLhttp://en.wikipedia.org/wiki/Hindustan_Petroleum_Corporation_Limitedhttp://en.wikipedia.org/wiki/HPCLhttp://en.wikipedia.org/wiki/ATFhttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-40http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-40http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-40http://en.wikipedia.org/wiki/BPCLhttp://en.wikipedia.org/wiki/Bharat_Petroleum_Corporationhttp://en.wikipedia.org/wiki/High_courthttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/GECAShttp://en.wikipedia.org/wiki/GE_Commercial_Aviation_Serviceshttp://en.wikipedia.org/wiki/GECAShttp://en.wikipedia.org/wiki/A320http://en.wikipedia.org/wiki/Aircrafthttp://en.wikipedia.org/wiki/Karnataka_High_Courthttp://en.wikipedia.org/wiki/Karnataka_High_Courthttp://en.wikipedia.org/wiki/Aircrafthttp://en.wikipedia.org/wiki/A320http://en.wikipedia.org/wiki/GECAShttp://en.wikipedia.org/wiki/GE_Commercial_Aviation_Serviceshttp://en.wikipedia.org/wiki/GECAShttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/High_courthttp://en.wikipedia.org/wiki/Bharat_Petroleum_Corporationhttp://en.wikipedia.org/wiki/BPCLhttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-40http://en.wikipedia.org/wiki/ATFhttp://en.wikipedia.org/wiki/HPCLhttp://en.wikipedia.org/wiki/Hindustan_Petroleum_Corporation_Limitedhttp://en.wikipedia.org/wiki/HPCL -
7/29/2019 Kingfisher Financial Turmoil
18/27
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 UKcourt
on Jul 16, 2010 after Kingfisher did not pay for three month lease rental for
A320 aircraft it leased from DVB.
Airports Authority of India (AAI) default
In a written reply to the Rajya Sabha, Civil Aviation Minister Vayalar Ravi
informed that Kingfisher Airlines did not settle dues on a regular fortnightly basis
and that their exceeded the security deposit / bank guarantees available with AAI.
As per the details provided, as on June 30, 2011, Kingfisher Airlines owes 208.06
crore (US$39.53 million).
Net worth eroded & going concern
In Sep 2011, the Chairman & Managing Director of Kingfisher Airlines made
following disclosure to BSE;
The Company has incurred substantial losses and its net worth has been eroded.
However, having regard to improvement in the economic sentiment, rationalization
measures adopted by the Company, fleet recovery and the implementation of the
debt recast package with the lenders and promoters including conversion of debt
into share capital, these interim financial statements have been prepared on the
basis that the Company is a going concern and that no adjustments are required to
the carrying value of assets and liabilities".
http://en.wikipedia.org/wiki/Aircrafthttp://en.wikipedia.org/wiki/A320http://en.wikipedia.org/wiki/GECAShttp://en.wikipedia.org/wiki/DVBhttp://en.wikipedia.org/w/index.php?title=DVB_Aviation_Finance_Asia_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/UKhttp://en.wikipedia.org/wiki/DVBhttp://en.wikipedia.org/wiki/Rajya_Sabhahttp://en.wikipedia.org/wiki/Vayalar_Ravihttp://en.wikipedia.org/wiki/Bank_guaranteehttp://en.wikipedia.org/wiki/AAIhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/BSEhttp://en.wikipedia.org/wiki/Going_concernhttp://en.wikipedia.org/wiki/Going_concernhttp://en.wikipedia.org/wiki/BSEhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/AAIhttp://en.wikipedia.org/wiki/Bank_guaranteehttp://en.wikipedia.org/wiki/Vayalar_Ravihttp://en.wikipedia.org/wiki/Rajya_Sabhahttp://en.wikipedia.org/wiki/DVBhttp://en.wikipedia.org/wiki/UKhttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/w/index.php?title=DVB_Aviation_Finance_Asia_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/DVBhttp://en.wikipedia.org/wiki/GECAShttp://en.wikipedia.org/wiki/A320http://en.wikipedia.org/wiki/Aircraft -
7/29/2019 Kingfisher Financial Turmoil
19/27
This filing was widely covered by Indian and international print and electronic
media and analysts. It was stated by analysts and media that the company needs
capital infusion to remain viable and this has pushed shares to near historic
lows.[50]
Kingfisher Airlines Lenders later stated that they consider that company is
viable.[51]
On 15 November 2011 the airline released poor financial results, indicating that it
was "drowning in high-interest debt and losing money". Mallya indicated that his
solution was for the government to reduce fuel and other taxes. The government
was engaged in assessing whether to bail out the company and other airlines or let
market forces determine which ones survive.
Bank account frozen
In December 2011, for the second time in two months, Kingfisher's bank accounts
were been frozen by the Mumbai Service Tax department for non-payment of dues.
Kingfisher Airlines owes 70 crore (US$13.3 million) to the service tax
department[53]. Indian tax body also stated that Kingfisher Airlines is delinquent[54]
As response, Dr. Vijay Mallya called on the Chairman of Central Board of Excise
and Customs and offered to pay up the dues by 13 Dec 11
Legal action by Excise & Customs
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.
http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-49http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-49http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-49http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-50http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-50http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-50http://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-52http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-52http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-52http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-53http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-53http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-53http://en.wikipedia.org/wiki/Vijay_Mallyahttp://en.wikipedia.org/wiki/Vijay_Mallyahttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-53http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-52http://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-50http://en.wikipedia.org/wiki/Kingfisher_Airlines#cite_note-49 -
7/29/2019 Kingfisher Financial Turmoil
20/27
Winding up petition
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.
http://en.wikipedia.org/wiki/High_Courthttp://en.wikipedia.org/wiki/Bangalore_High_Courthttp://en.wikipedia.org/wiki/Lufthansa_Technikhttp://en.wikipedia.org/wiki/Bharat_Petroleum_Corporation_Limitedhttp://en.wikipedia.org/wiki/Bharat_Petroleum_Corporation_Limitedhttp://en.wikipedia.org/wiki/Bharat_Petroleum_Corporation_Limitedhttp://en.wikipedia.org/wiki/Bharat_Petroleum_Corporation_Limitedhttp://en.wikipedia.org/wiki/Lufthansa_Technikhttp://en.wikipedia.org/wiki/Bangalore_High_Courthttp://en.wikipedia.org/wiki/High_Court -
7/29/2019 Kingfisher Financial Turmoil
21/27
Kingfisher Airlines posts Rs 577 cr loss on cost flap
Kingfisher Airlines has posted a net loss of Rs 577 crore in the financial year
ended March 2007, the balance sheet of UB Holdings, which owns the airline,shows. The loss was on a revenue of Rs 1,553 crore earned during the year. This,
incidentally, may well be the biggest loss posted by a major domestic airline
recently.
Kingfisher's more established rival, full-service carrier Jet Airways, had recorded a
marginal profit of Rs 28 crore in the same period while government-owned Indian
closed the year with a Rs 275-crore loss. Industry analysts estimate that domestic
airlines have lost around Rs 2,000 crore in 2006-07.
Kingfisher, now in its third year of operation, hopes to break even in 2008-09. But
analysts reckon that the going could get tougher, especially if the current cost
pressures continue even as the Vijay Mallya-owned airline attempts to chart its
international foray next year.
"The high cost is the main reason for the loss," said Kingfisher Airlines vice-
chairman Subhash Gupte. "Aircraft acquisition, depreciation, new routes, training
requirement and the spiralling cost of aviation fuel in India are the other reasons,"
he said. Kingfisher's failure to utilise aircraft capacity in full has also added to the
woes.
The carrier had started operations with four aircraft in May '05 and generated an
income of Rs 438 crore during the year ended March '06. It suffered a loss of Rs
240 crore that year. The company expects losses to fall gradually, especially as
new routes stabilise.
-
7/29/2019 Kingfisher Financial Turmoil
22/27
But despite the losses, Kingfisher continues to expand its network furiously. Just
last week, the airline announced the introduction of seven new sectors, adding five
new cities to its network. After these additions, it will have 238 departures daily
and serve 42 destinations with a fleet of 37 planes.
"Capacity on the domestic routes is still growing faster than demand," says Kapil
Kaul, India head of the Centre for Asia Pacific Aviation, a Sydney-based airline
consultancy. This is despite the Kingfisher-Deccan combine rescheduling fresh
aircraft induction for the next one year.
The group has a current market share of 30%, which Kingfisher claims makes itthe country's largest airline entity, ahead of Jet Airways and Jet Lite (the erstwhile
Sahara). Together, they connect 75 cities and offer over 558 flights daily with a
fleet of 80 planes. Incidentally, domestic demand grew 35% last year, primarily on
low fares charged by fiercely competing carriers. However, Kingfisher's planned
international foray will also add to the burden because of sizeable investments in
new offices, staff and airport infrastructure. Though it is still unclear whether this
will be done using the Kingfisher or Deccan flights, the routes could take up to one
year to turn profitable, said airline executives.
Also, the airline's flight path will be even more difficult because of the recent
addition in capacity on the India-US route by rivals like Continental, Delta, Jet and
Air India. The moot point is how soon the airline is able to turn around Air
Deccan. Air Deccan has been in the red since its inception, having accumulatedlosses of around Rs 420 crore. Kingfisher Radio, another UB Group firm, had
acquired 46% stake in Deccan Aviation this June. The prospects of an eventual
merger between the two carriers is on the cards.
-
7/29/2019 Kingfisher Financial Turmoil
23/27
Conclusion
After doing a study of this project representing on Kingfisher Airlines, I have come
to a conclusion that Kingfisher Airlines is one of the largest and most widespread
airlines of the country providing its services not only in India as well as outside
India also. It has alliance with many other airlines in this sector.
Kingfisher Airlines offers world class services to the customer at anominal rate. The national carrier takes immense pride in having successfully
played a pivotal role in making various facets of India popular with the people of
the world and acting as the countrys cultural ambassador. The airline uses the
services of one of the advanced plans been operated in the world.
To sum up I would like to say that Kingfisher Airlines is serving its
customer in an appreciated way and going to be in the list of best services
providers in coming years.
-
7/29/2019 Kingfisher Financial Turmoil
24/27
CERTIFICATE
The project report titled Reason for Kingfisher
Airline losses" PreparedbyANANDRAJ AHIRWAR, under
the guidance and supervision of Mr. Ajay Dwivedi
(Lecturer OF M.B.A. Deptt. Of S.S.H.C. JAIN I.M.R.) for
the partial fulfillment of the degree of Master of Business
Administrationis satisfactory in respect of :-
Comments By Supervisor Head of Deptt. Examiner
1. Contents and presentation
of the subject matter
2. Language
3. Embodies the original work
of the candidate.
4. Submission within due date
Signature of Examiner Signature of Supervisor
Signature of H.O.D.
-
7/29/2019 Kingfisher Financial Turmoil
25/27
DECLARATION BY CANDIDATE
I declare that the project report on Reason for Kingfisher
Airline losses"in Sagar Cityis my own work, conduct under the
supervision of Mr. Ajay Dwivedi (Lecturer OF M.B.A. Deptt. Of
S.S.H.C. JAIN I.M.R.) Affiliated to Dr. Hari Singh Gour Central
University, Sagar .To the best of my knowledge the report does not
contain any work which has been submitted for the award of any
degree, anywhere.
Signature of the Candidate
Anandraj AhirwarMBA 4th Sem
-
7/29/2019 Kingfisher Financial Turmoil
26/27
ACKNOWLEDGEMENTI would like to pay my sincere thanks to Mrs. Parul Guru Head of the
MBA Dept., S.S.H.C. JAIN I.M.R. Sagar for providing me the opportunity of
doing the project report.
I would to express my deep sense of gratitude to Mr. Ajay Dwivedi
(Lecturer of MBA SS.H.C. JAIN I.M.R. SAGAR) for his valuable guidance,
advises, Cooperation & Constant encouragement during the project preparation.
He is very supporting and without his help I would not have completed my
project report successfully.
I express my heartful thanks to Mr. Sumit Rathore, Mr. Sanjay Khare, &
Miss. Garima Chourasia and to the staff of S.S.H.C. JAIN IMR., Parents and friends
for their kind support and suggestion.
I am very thankful to retailer and customer whom I had approached for
collection of necessary data and who give their valuable time and comments,
which were the inputs for my survey.
Date: Anandraj AhirwarPlace: MBA 4th Sem.
-
7/29/2019 Kingfisher Financial Turmoil
27/27
PREFACE
The project report has an objective to get the MBA student
familiar with real life business situation and gives an opportunity to
the student of understand the theoretical concepts of marketing and
finance in practical way.
In todays world Consumer is the King consumer test and
preference go alone way in the actual sales of the product. Every
research work has to deal with various people in concern
organization and each of them have their own opinion and thinking
about various topics.
The main aim of the survey report was to determine the
Reason for Kingfisher Airline losses"
I tried my best to express the report through satisfactional
representation, graphs, pie diagrams etc. and it helped me to
enhance my knowledge I am extremely happy to place before our
esteemed teachers.