King fisher Airlines

1. SUBMITTETO SUBMITTED BY
DR.M.JOTHILAKSHMI,M.B.A.,PH.D., V.SNEHA
ASSISTANTPROFESSOR, IIMBA
DEPARTMENTOFMANAGEMENTSTUDIES,

2. INTRODUCTION
KingfisherAirlinesLimitedwasanairlinegroupbasedinIndia.
ItsheadofficeisinAndheri(East),MumbaiandregisteredofficeinUB CityBengaluru.
KingfisherAirlines,throughitsparentcompanyUnitedBreweriesGroup, hada 50% stakeinlow-cost
carrierKingfisherRed.
UntilDecember2011,KingfisherAirlineshadthesecondlargestshareinIndia’sdomesticsairtravel
market.
However,theairlineshadbeenfacingfinancialissuesformanyyears,anddueto a severefinancialcrisis
facedby theairlinesat thebeginningof 2012,thissharedroppedto thelowestinthemarketinApril2012.

3. FOUNDER
VIJAY MALLYA

5. Details of the case study
Kingfisher Airlines shut down its operationsand locked out its employees for
several days whenon 24 October2012,the DGCAsuspendedits flight certificate.
The suspensionresultedfrom theairline’s failure to give an effective response to
the show-cause notice issued by the DGCA.
On 25 October 2012, its employees agreeto return to work..
However, in February201 the Indian government announcedthe withdrawalof
both domesticsand international flight entitlements allocated to the airline.
The SanjayAggarwal (CEO) quit on 17 February2014.

6. STARTING OF THE CRISES
 Ever since the airline commencedoperationsin 2005, the companyis reportingthe
loses. But the situation became more horribleafter acquiring the Air Deccan in
2007, Afteracquiringthe Air Deccan, the companysuffereda loss of over Rs. 1,000
crore for three executive years. By early2012, the airline accumulatedthe loses of
overRs. 7,000crore withhalf of its fleet grounded and several membersof its staff
goingon strike. Followinghighlight net losses of the companysince inception:

7. Reasons for the Downfall of kingfisher airlines
 Frequent changesOn Focus:
 Kingfisherfirst launchedall economy classwithfoodand entertainment system, later on,
they shiftedfocus to luxurybusinessclass on theiraircraft,a lot of air travelers appreciated
thehospitality, aircraftconditionand it’sambiencewhen Kingfisher focus was on luxury.
 After acquiringthe Air Deccanthey suddenlyshifted focuson low-cost air travelling,
frequent changesin the hospitalityand aircraft ambiencemade travelerslosetheirinterest
in the brand.
 Theydidn’tfocuson highlyprofitable routes in domestics area, acquiredAir Deccanair
crafts(KingfisherLite),it use to run at the same timeas Kingfisher airlines,there was no
propersyndicationbetweenKingfisherLite& KingfisherAirlines.

8. DEBT RESTRUCTURING
 In the situation of loss and toughfinancial condition, the companywent for more
loans. Table shows the portion of securedand unsecured loanstaken by the
company. Due to heavyburdenof debt and internet, in November 2010, the
companyadopted the wayof the debt restructuringand under the total 18 leading
lenders, those have landed total Rs. 8,000 crores agreedto cut interest ratesand
convert part of loans to equity.
 Debt restructuring also couldn’t change the game. By restructuring, companyhad
reduced the interest charges by Rs. 500 croreseveryyear, but due to the high
leverage condition and increase in cost, the companystarted to face the liquidity
problem.

9. DEBT RESTRUCTURING
During lateFebruary, 2012, Kingfisher Airlines state to sinkintoa fresh crisis,
Kingfisher’smarket share clearly droppedto 11.%. The cancelationof the
flightswas accompaniedby a 13.5%dropin the stocks of the company on 20
February 2012.
In response to a situationas bad as bankruptcy, Vijay Mallyaannounced
frozenand hugedébuts due, it is unknownso as fromwhere he arrangedthe
money. But he apologizedto his workers and saidthat he wouldpay them
immediately. By this time, Kingfisher had accumulatedloses of 444 crore
during the thirdquarter of the fiscal year 2011-12.

10. Acquisition For Expansion
 Kingfisherairlines acquiredthe Air Deccanfor thesakeof expansion.
 As per the internationalairlinepolicy,any airlinesshould have minimumfiveyears of
domestic experience intheirrespective area to get the internationalrouteslicense.
 For the sake of international routelicense.Kingfisher acquiredthe Air Deccan,theynever
triedto syndicatedthese two companies to improvetheirprofitswithitsmerger.
 Without stabilizingin the domesticsmarket to knowthe groundrealitiesof the airlines
indstry.Kingfisher steppedintothe international routeswherethe competitionis veryhigh
comparedto thedomesticsairways.
 Whentheyplannedabout the international routestheyhardlyhave threeyearsof
experience, acquisitionand expansionthese two factorsstarted throwingKingfisherinto
downfall.

11. LACK OF MANAGEMENT
There was no single CEO continuedfor one year in Kingfisher airlines, there
was a frequentchange in the toplevel management.
Mr. Vijay Mallyawas a gift to SiddharthaMallya(sonof Vijay Mallya)by his
father on his birthday, Siddhartha Mallyadoesn’t have the maturityage to
runthe airlines business because he is so busy in making Mr. Gopinath (Ex
founder of Air Deccan)as CEO of the Kingfisher airlines to bring the company
intoa profitable business.
But lack of proper expertise and experience in the airline industry, lack of
management causedthe downfall of Kingfisher airlines.

12. DELAYEDSALARY
Kingfisher Airlines delayed salaries of its employees in August 2011, and
for four months in successionfromOctober 2011 to January2012.
Kingfisher also defaulted on paying the Tax Deducted at sourcefrom
the employee income to the tax department.

13. AIRCRAFT LEASE RENTALDUES
• 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 grounded15 out of 66 aircraft in its fleet as it
was unable to meet the maintenance and overhaul expenses.

14. BANK ARREARS
 KingfisherAirlineshadnotpaidsomebankers(Lenders)aspertheDebtRecastPackage(DRP)with
lendingbanks.Tilltheendof Dec2011,thearrearswereestimatedto be260 croreto 280 crore.
LendershencehadtoldKingfisherAirlinesto clearitsduesbeforetheycanreleaseanymoremoney
soughtby theAirline.By Feb 2012,KingfisherhasbeendeclaredNPAby followingbanks:
 StateBankOf India
 Bankof Baroda
 PunjabNationalBank
 IDBI
 CentralBankof India
 Bankof India
 CorporationBank

15. FROZENBANK ACCONTS
On March 3, 2012, The Central Boardof Excise & Customs of India froze
many more Kingfisher accounts as it was unable to pay al the dues as per
schedule.
Kingfisher was meant to pay 1 crore per working day.
Aviationminister Ajit Singh warnedthe airlinesabout the temporary
suspensionof the license until the crisis was sortedout.
He announced that the rest of the airline’s fleetwould be groundedand al
fights cancelleduntil the crisis came to an end. This would be only one step
frompermanently closing the airlines.

16. AAI REPORTS
Kingfisher receiveda noticefromthe Airports Authorityof Indianon
February2012 regarding accumulated dues of 255,06crore. The airlines
was operating on cashand carry basis for thelast six months, with daily
payments amounting to 0.8 crore.

17. SOLUTION
 Changethe management
 Changethe entire boardof directors
 Management shouldbe givento different or newsystem.
 Decentralization in authority.
 Leasing outtheir planes(unusedor minimallyusedplanes)to othercarriers.
 Cancelling all ordersof airplanes.
 Transparencyand confidence building measuresfirstlyamongstits ownemployeesand thenthe customers.
 Cut costsby not flying to expensivesectorsand airportsresulting in huge parking costsand lowreturns.
 Focuson tire II ND tier III citieswhereotherairlinesmayhave made considerable inroadsand judge the
operating costson the same.
 FDI in aviationmustbe permitted.