GALGOTIAS UNIVERSITY

CASE STUDY IN CORPORATE FINANCE

TOPIC: KINGFISHER DEBT CRISIS

SUBMITTED BY

RIMIKA CHAUHAN (18GSOL1010021)

4TH SEM LLB(HONS)

Introduction
Kingfisher Airlines, a leading Indian private airline, faced a serious financial crisis in
November 2011. The airline, which had not made a profit since its inception, went through
debt restructuring once in March 2011 in the form of a bailout package from a consortium of
13 banks that included State Bank of India and ICICI Bank. Even after the debt restructuring
and infusing of fresh capital in the form of an additional debt of Rs. 12.12 billion from the
consortium of banks, the airline found itself unable to overcome the problem and reported a
net loss of Rs. 7322.10 million during the first six months of the FY 2012. For FY 2011, the
airline had accumulated losses of 102.74 billion and more than fifty percent of its net worth
had been eroded. The cash-strapped and bleeding airline cancelled 175 flights out of the 418
allotted for the Winter Schedule, which included four international flights to Bangkok.
According to the Centre for Asia-Pacific Aviation (CAPA) chief executive, Kapil Kaul
(Kaul), the airline urgently required capital infusion of $400 million, including an immediate
$200 million to maintain its daily operations...

Facts of Case Study

Kingfisher Airlines was established in the year 2003 and owned by the United Breweries
Group which is based in Bengaluru. It came into the aviation market at a time when the low-
cost airlines had galvanized the market and made air-travel available to every Indian. The
promoter of the airline, India's biggest liquor tycoon Mr. Vijay Mallya was well known for
his vibrancy, quality and style. He used his popularity to uplift United Breweries Groups
brand and invented “King of all times” slogan for the beer. Starting off as the Chairman of
UB Group, his international blitz of buying and selling Berger Paints U.K. and spending
money on fast cars, yachts and many international homes remodelled him to its brand icon.
The company possessed two subsidiaries Vitae India Spirits and, Northway Aviation. The
Aircraft acquisition and financing pre-delivery payments was taken care by Northway
Aviation. On 9th May 2005 Kingfisher airlines started commercial operations with four brand
new Airbus A320 – 200s, which operated between Delhi and Mumbai on a daily basis. The
company aimed to provide world class facilities and lead the competition in products well as
service offerings, with brand new planes and excellent facilities like: hot meals, comfortable
seats, personalized entertainment and treating passengers as “guests”. With this kind of an
approach, the company started with 4 flights in a day between Delhi and Bangalore, and
further increased it to 104 flights per day by introducing 17 aircrafts and connecting 16 cities
in one year and setting record in 2005-2007, of fastest airplane induction. By the year 2006,
the Airlines achieved a five-star status and were popular among the business class travellers.
It also offered personalized live in-flight entertainment by collaborating with Dish TV India
Limited. By connecting Bengaluru with London, the airline commenced its international
operations on 3rd September 2008. During the year 2008, the company attained the
reputation for being the only five-star air travels in India and came to be known for rendering
excellent flight services to its traveller’s and maintained its position for the next three years.
In 2009, Kingfisher won numerous accolades across the globe and it was one of the only
seven airlines which got 5- star rating by Skytrax. Eventually it became the largest airline of
the second most populated country in the world with 26.7% share in aviation market.
Kingfisher Airlines operated around 250 daily flights. In May 2009, Kingfisher Airlines got
the highest share in aviation market among all the airlines in India by carrying more than 1
million passengers. At that time three classes of travel were offered by Kingfisher airlines to
its travellers Kingfisher First: which was the business class service mainly focused on people
who can afford premium services, Kingfisher Class: the Premium Economy service for the
middle-class people who were trendy and upwardly mobile and Kingfisher Red: Low fare
basic class which was another name for Air Deccan and focused on the middle class people
who were price conscious. In the year 2011, it was once again awarded the best Indian airline
of the year. However, it reported a loss of Rs.1,000 crore for three consecutive years.

Causes
 Lower ticket prices
 The domestic airlines are projected to report a combined loss of $2.5bn by the end of
fiscal (2011-2012)
 Employee strike
 Cancellation of flights
 Losses since starting of the business
 Acquiring of Air Deccan
 Operational cost
 Bank accounts frozen by Income Tax depot
 Bharat petroleum corporation filed a case for non -payment of dues (250cr)
 Unable to pay the aircraft lease rentals
 It was declared national big NPA y bank consortium
 2000 job cuts
 Charging low fare and operating in prime routes.
 Failed to study the business model of low-cost carrier

Debt Restructuring
 In the situation of loss and though financial condition, the company went for more
loans. 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. 8000 crores agreed to cut interest rates and convert
part of loans to equity.
 Debt restructuring also couldn’t 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.
 During late February, 2012 kingfisher airlines started to sink into a fresh crisis.
Kingfisher’s market share clearly dropped to 11.3%. the cancelation of the flights
was accompanied by a 11.35% drop in the stocks of company on 20 February
2012.
 In response to a situation as bad as bankruptcy, Vijay Mallya announced that he
had organised funds to pay all the employee’s overdue salaries. With bank
accounts frozen and huge debt due, it is unknown so as from where he arranged
the money. But he apologised to his workers and said that he would pay them
immediately. By this time, kingfisher accumulated losses of 444 crores during the
third quarter of the fiscal year 2011-12.

Bank Arrears
Kingfisher airline 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 crores to
280 crores. Lenders hence had told kingfisher Airline to clear his dues before they can release
any more money sought by the airline. 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

Frozen Bank Accounts

 On march 3, 2012, the Central Bank of excise and custom of India froze many more
kingfisher accounts as it was unable to pay all the dues as per schedules.
 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 airlines fleet would be grounded and all flights
cancelled until the crises came to end.

AAI Reports
Kingfisher received a notice from the airport 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 6 months, with daily payments amounting to 0.8 crore.

Solutions
 Foreign investment
  Fuel efficient planes for shorter distance
 Improve revenue per passenger
 Avoid aggressive expansion of fleets
 Remove the flights form low frequency routes
 Meet the expectations of its customers
 Meet the aspiration of employees

Conclusion
Indian airline business has seen ideal growth and revolution which will go on in coming
years. Many airlines come and go while the others have gained a strong ground in this
business. The grand and ambitious Kingfisher Airline’s project suffered huge downtime due
to improper strategic decisions and mismanagement by the group. Instead of trying to utilize
this grand airline project opportunity. The airline became for the luxurious design, food and
ambience including big goals for settling in international market but neglected the basic
economic class. The strategy practiced by Vijay Mallya could not sustain for long and proved
to be a great threat at a large scale to both, sustainability and stabilization of the aviation
sector. Mallya is now the only board member left holding on to the brand. For a business to
be successful the main focus should be on creating an efficient work-frame, taking
appropriate decisions, establishing healthy competitive environment, improving quality of
service and standing in unity to find best solutions to problems. Kingfisher Airline was one
of the largest and most wide spread airline of the country provided its services not only in
India as well as outside of India also. Due to lack of management and financial crisis
Kingfisher airline was permanently closed its counter on 15 Feb 2012.