Kingfisher Case Study

EISSN 2277-4955 THE KING WITHOUT FISHES CASE ON CRISIS OF KINGFISHER AIRLINES Prof. Bhavik M. Panchasara bunglewadi education Foundations Group of Institutions, RajKot, emailprotected com ABSTRACT Indian line Industry is unriv eached of the fastest festering foodstuffs in the world. But nowadays it is in the watchword collectable to several(predicate) reason. And that is the sorrow of one of the prima(p) aviation player Kingfisher behaviorlines. The airway has been facing pecuniary issues for mevery grades. trough celestial latitude 2011 Kingfisher line of businesslines had the second largest treat in Indias domestic help air travel securities industry.However due to the ascetic pecuniary crisis faced by the airline, it has the one-fifth largest market shargon currently. Even the phoner fuck off no funds to comport the salaries to the employees and is facing some(preno houral) other issues like fuel dues aircraft fill rental dues, service tax dues and believe arrears. This graphic symbol outlines the fiscal turmoil of the Kingfisher in detail. Keywords melodic line industry, Kingfisher Airlines, pecuniary turmoil, financial issues, crisis and debt restructuring INTRODUCTION Kingfisher Airlines is an airline group ground in India.Its head office is The Qube in Andheri (East), Mumbai and Registered Office in UB City, Bangalore. Kingfisher Airlines was established in 2003. It is owned by the Bengaluru based linked Breweries Group. Kingfisher Airlines, through its p atomic number 18nt alliance United Breweries Group, has a 50% stake in affordable common carrier Kingfisher Red. The airline started commercial trading operations in 9 May 2005 with a fleet of 4 new Airbus A320-200s operating a flight from Mumbai to Delhi. It started its planetary operations on 3 September 2008 by connecting Bengaluru with London.The airline has been facing financial issues for many years. Till December 2011 Kingfisher Airlines had the second largest allot in Indias domestic air travel market. However due to the severe financial crisis faced by the airline, it has the fifth largest market share currently, lonesome(prenominal) above Go Air. Kingfisher Airlines is one of the only seven airlines trophyed 5star rating by Skytrax along with Cathay Pacific, Qatar Air shipway, Asiana Airlines, Malaysia Airlines, Singapore Airlines, and Hainan Airlines. Kingfisher ope mark 250 perfunctory flights with regional and long-haul multi subject field services.In May 2009, Kingfisher Airlines carried more than 1 million passengers, large it the heightsest market share among airlines in India. Kingfisher besides owns the Skytrax award for Indias best airline of the year 2011. BAUDDHIK VOLUME 3, no -1, JAN-APRIL-2012 84 EISSN 2277-4955 STARTING OF THE CRISES Ever since the airline commenced operations in 2005, the order is reporting the losings. But the power became more horrible after acquiring the Air Deccan in 2007. After a cquiring the Air Deccan, the union suffered a loss of over Rs. 1,000 crore for three administrator years. By early 2012, the airline put in the losses of over Rs. ,000 crore with half of its fleet grounded and several members of its lag going on strike. Following table 1 highlights losses of the keep beau monde since inception Table 1 clams Reported Losses and debts since inception (Rs. In Crores) Year Loss Secured Loans Unsecured Loans queer-11 -1027. 4 5,184. 53 1,872. 55 Mar-10 -1646. 22 4,842. 43 3,080. 17 Mar-09 -1608. 83 2,622. 52 3,043. 04 Mar-08 -188. 14 592. 38 342. 00 Jun-07 -419. 58 716. 71 200. 00 Jun-06 -340. 55 448. 16 3. 50 Mar-05 -16. 79 159. 42 125. 06 DEBT RESTRUCTURING In the fact of loss and tough financial condition, the company went for more loans.Table 1 shows the portion of secured and unsecured loans taken by the company. Due to heavy magnetic core of debt and interest, in November 2010, the company adopted the way of debt restructuring and on a lower floor that total 18 leading loaners, those have land total Rs. 8,000 crores, agreed to cut interest rates and convert part of loans to rightfulness. As per the contract, lenders have converted Rs. 650 crores debt into p rootage shares which leave behind be converted into uprightness when the company lists the on the Luxembourg Stock stand in by selling global depositary receipts (GDR).Shares will be converted into ordinary equity at the price at which the GDRs are sold to investors. as well the 1,four hundred crore debt which will be 800 crore converted into preference shares, some other CRISIS TILL outride Debt restructuring also couldnt transform 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. The company had no funds in hand and it created the remarking payment problems.DELAYED lucre Kingfisher Airline has staff strength of 6,000 and spends 58 crore on salaries a calendar month. According 173. 66 to the first tie financial results, it has increased from crore under the employees cost head, which has 163. 40 crore during the same quarter last year. Kingfisher Airlines delayed salaries of its employees in August 2011, and for four months in succession from October 2011 to January 2012. Kingfisher also defaulted on paying the Tax Deducted at base from the employee income to the tax department. debt has been converted into redeemable shares for 12 years.Due to debt restructuring, the company able to down the average interest rate to 11% and to save Rs. 500 crores every year in interest cost. BAUDDHIK VOLUME 3, NO. -1, JAN-APRIL-2012 85 EISSN 2277-4955 FUEL DUES In the past several years, Kingfisher airlines had pother paying their fuel bills. Due non-payment, several Kingfishers vendors had filed convoluted up appeal with the proud Court. As on Nov 2011, winding up petition of seven creditors was pending before the Bangalore High Court. In the past Lufthansa Technik & Bharat oil Corporation Limited (BPCL) had also filed winding up petition against Kingfisher Airlines. here are some subjects ? ? HPCL In Jul 2011, Hindustan petroleum Corporation Limited (HPCL) stopped the fuel (ATF) supplies for nearly two hours to Kingfisher airlines owing to the non-payment of dues. Situation was later resolved. ? BPCL Bharat fossil oil Corporation in 2009 had filed a case against Kingfisher airlines for non-payment of dues. High court in an order verbalise that the immaculate amount 245 crore had to be paid by Nov 2010 and the airline paid it in instalments. AIRCRAFT LEASE RENTAL DUES Since 2008, it has been estimate that Kingfisher Airlines has been unable to pay the aircraft lease rentals on time.Due to that, the Kingfisher Airlines has grounded 15 out of 66 aircraft in its fleet as it was unable to meet the brinytenance and overhaul expenses. Here are the some major issues with ? GECAS In Nov 2008, GE Commercial Aviation Services threatened to repossess 04 leased planes in lieu of default. Kingfisher Airlines initially BAUDDHIK On 9 December 2011, S. K. Goel, chairman, exchange come along of chance on and Customs (CBEC) announced that CBEC is considering legal action against Kingfisher for not paying service tax. As on tenth Jan 2012, Kingfisher Airlines has service tax arrears of 70 crore.The Ministry of Finance has given up a concession to Kingfisher and instructed them to pay the dues by thirty-first Mar 2012. In Jan 2012, SERVICE TAX Kingfisher legitimate a notice from the Airports Authority of India on February 2012 regarding accumulated dues of 255. 06 crore. The airline was operating on a hard cash and carry basis for the last six months, with daily payments amounting to 0. 8 crore. AAI REPORTS DVB In Jul 2010, DVB Aviation Finance Asia Ltd (a lessor from Singapore), sued Kingfisher Airlines for lease rental default.Case wa s filed in a UK court on Jul 16, 2010 after Kingfisher did not pay for three month lease rental for A320 aircraft it leased from DVB. denied that it missed the payments. GECAS had filed a complaint with DGCA saying Kingfisher had defaulted on rentals for four A320 aircraft, and want repossession of the planes. In Jan 2009, The Karnataka High Court rejected petition by Kingfisher Airlines to restrain GECAS from taking any maltreat to deregister and repossess the 04 aircraft in dispute. As a result, Kingfisher had to turn over the A320 aircraft to GECAS. VOLUME 3, NO. -1, JAN-APRIL-2012 87EISSN 2277-4955 Kingfisher paid 20 crore towards its dues for useable by February 20. With this, Kingfishers market share clearly go downped to 11. 3%. The cancellation of the flights was accompanied by a BANK ARREARS Kingfisher Airlines had not paid some bankers (Lenders) as per the Debt Recast share (DRP) with lending banks. Till the end of Dec 2011, the arrears were estimated to be 260 crore to 280 crore. Lenders hence had told Kingfisher Airlines to clear its dues before they can run any more money sought by the Airline. Ravi Nedungadi, chief financial officer of UB Group save said that the arrears were 180 crore. state of matter Bank of India (SBI) on fifth Jan 2012 declared Kingfisher Airlines a NPA. SBI is largest creditor and the leader of the consortium of banks in the DRP (Debt Recast Package) and has an exposure of NPA by following banks State Bank of India Bank of Baroda Punjab National Bank IDBI Central bank of India Bank of India Corporation Bank THE CRISIS CONTINUE During late February, 2012, Kingfisher Airlines started to sink into a fresh crisis. some(prenominal) flights were cancelled and aircraft were grounded. The airline shut down most(prenominal) international short-haul operations and also temporarily disagreeable battles.Out of the 64 aircraft, only 22 were known to be 1,457. 78 crore. Thus, by Feb 2012, Kingfisher has been declared 13. 5% dr op in the stocks of the company on 20 February 2012. The chief executive officer of the airlines, Sanjay Agarwal was summoned by the Directorate General of Civil Aviation to explain the disruptions of the operations. The State Bank of India, which is the lead lender to Kingfisher airlines said that they would not consider giving any more loans to Kingfisher unless and until it comes up with a new equity by itself. Political activists also claimed that bailing or component a private airline would lead to problems within the government.By February 27, Kingfisher operated only above 150 out of its 400 flights and only 28 aircraft were functional. Reuters reported that if Kingfisher were to shutdown, it would be the biggest failure in the History of Indian Aviation. It was announced that the invest flights to the smaller airports of Jaipur, Thiruvananthapuram, Nagpur and also to Hyderabads Rajiv Gandhi International Airport were all shut down and only one/two-stop flights from its main hubs of Delhi and Mumbai would operate. In response to a situation as bad as bankruptcy, Vijay Mallya announced that he had organised funds to pay all the employees overdue salaries.With bank accounts frozen and huge debts due, it is unknown so as from where he arranged the money. But he apologized to his workers and said that he would pay them like a shot. By this time, kingfisher had accumulated losses of 444 crore during the third quarter of the fiscal year 2011-12. December 2011 and part of the arrears. BAUDDHIK VOLUME 3, NO. -1, JAN-APRIL-2012 88 EISSN 2277-4955 arctic BANK ACCOUNTS On marching 3, 2012, The Central Board of Excise & Customs of India froze many more Kingfisher accounts as it was unable to pay all the dues as per schedule. Kingfisher was meant to pay 1 crore per working day.Aviation minister Ajit Singh warned the airline near the temporary suspension of the license until the crisis was sorted out. He announced that the rest of the airlines fleet would b e grounded and all flights cancelled until the crisis came to an end. This would be only one mensuration from permanently closing the airline. IATA SUSPENSION On March 7, 2012 IATA suspended ticket sales of Kingfisher airlines citing non-payment of dues as the native reason, and they said that sales services will only be restored once Kingfisher settles ICH (IATA Clearing House) account.IATA also immediately directed all travel agents to stop booking tickets for Kingfisher. This would affect Kingfishers business by around 30%. Kingfisher claimed that frozen bank accounts was the main cause of cosmos unable to pay the IATA, and the airline started making jump out arrangements for the sale of tickets. Soon it became difficult for the airline to follow the much smaller schedule that it earlier released as even more pilots began to go on strike. indecision AHEAD After analysing the entire scenario, there are strong possibilities of more difficult situation in the last month of fisc al year 2011-12.The company is in dilemma of finding help, but from where? 2. commandment NOTES 1. The purpose of the case is to make the students aware active the situation of financial crisis in any arrangement. The issues abstruse in the case are about the financial turmoil and its effects on the business and market share of the company. 3. 4. 2. 1. Is the Problem of Kingfisher Airlines Industry Specific or Company Specific? What is the Impact of High take of Debt on the operating performance of company? Should political science bailout Kingfisher Airlines? According to you, what are the possible ways for the company to overcome this situation?QUESTION FOR DISCUSSION Government has refused for bailing and all the lenders and bankers have no more trust. The employees are also not able to tolerate the profits crisis and the slipping market share leads the more difficulties. booster amplifier Vijay Malya has to decide the way ahead. Whether is it possible to save the company? There are very few alternatives. As per the previous news, Etihad Airways was interested in investing in Kingfisher by providing equity in exchange for a stake in the airline. Also involved in the talks was the International Airlines Group, owner of British fall carrier British Airways and Spanish flag carrier Iberia.But the question is the permission by Government. So at present there is very tough situation for Vijay Malya and for the company. Will new fiscal year start any solution for the company? Lets wait and watch. BAUDDHIK VOLUME 3, NO. -1, JAN-APRIL-2012 89 EISSN 2277-4955 3. The case would be first given for individual practice session for 15 min and then for 15 min the case can be discussed in groups of 4-5 students. 4. The case can be taught along with the concepts like ways to overcome the crisis and surviving strategies required to save the organisation keeping in mind the possible different options available. 5.The students can come prepared with topics of prevail ing crisis in Indian aviation industry and REFERENCES 6. other factors link up to the aviation industry in detail. Cross reference can be made taking into account the strategies used by the local, market of the falling organisation. national and international players to capture the slipping http//www. flykingfisher. com/mediacenter/press-releases/kingfisher-airlinesannouncement. aspx http//in. finance. yahoo. com/news/kingfisherairlines-q3-loss-widens-033419822. hypertext mark-up language http//timesofindia. indiatimes. com/india/Kingfi sher /12258986. cms http//articles. economictimes. ndiatimes. com/2 011-12-08/news/30490358_1_pilots-industrialaction-kingfisher airlines http//profit. ndtv. com/News/Article/aai-warnskingfisher-airlines-to-settle-dues-297284 http//articles. economictimes. indiatimes. com/2 010-09-26/news/27585421_1_cash-and-carrymode-bpcl-s chairman-kingfisher-airlines http//timesofindia. indiatimes. com/business/indiabusiness/Kingfisher-may-have-to-weather-pilots torm-next/articleshow/12214372. cms Annexure 1 Market share of Kingfisher Airlines as on January 2012 in the domestic Aviation Airline/Company Jet Airways (Including Jet Lite) indigotin Air India Spice Jet Kingfisher Go Air Share 28. 8% 20. 8% 17. 1% 16. 3% 11. 3% 5. 8% Source http//in. finance. yahoo. com/news/kingfisher-airlines-q3-loss-widens-033419822. hypertext mark-up language BAUDDHIK VOLUME 3, NO. -1, JAN-APRIL-2012 90 EISSN 2277-4955 Annexure 2 monetary value Movement and Performance Charts of Kingfisher Airlines Annexure 3 Index equivalence and Ownership Pattern of Kingfisher Airlines Sourcehttp//www. bseindia. com/bseplus/StockReach/AdvanceStockReach. aspx? scripcode=532747 Annexure 4 proportional Balance Sheet of Kingfisher Airlines Rs. In crores Sources Of cash thoroughgoing Share ceiling Equity Share Capital Share Appl.Money Pref. Share Capital Reserves remuneration worth Mar 11 1,050. 88 497. 78 2. 95 553. 10 -4,005. 02 -2,951. 19 Mar 10 362. 91 265. 91 7. 48 97. 00 -4,268. 84 -3,898. 45 Mar 09 362. 91 265. 91 8. 11 97. 00 -2,496. 36 -2,125. 34 Mar 08 135. 80 135. 80 10. 09 0. 00 52. 99 198. 88 Jun 07 135. 47 135. 47 0. 00 0. 00 249. 23 384. 70 Jun 06 98. 18 98. 18 0. 00 0. 00 125. 95 224. 13 Mar05 16. 20 16. 20 0. 00 0. 00 -2. 54 13. 66 BAUDDHIK VOLUME 3, NO. -1, JAN-APRIL-2012 85 EISSN 2277-4955 Secured Loans Unsecured Loans tally Debt Total Liabilities Application Of Funds Gross pile Less Accum.Dep. Net Block Capital WIP Investments Inventories Sundry Debtors Cash & Bank Bal. Total CA Loans & Adv. FDs CA, Loans & Adv. Current Liabilities Provisions Total CL & Prov. Net Current Assets Misc. Expenses Total Assets 2,254. 26 682. 37 1,571. 89 673. 35 0. 05 187. 65 440. 53 88. 18 716. 36 5,380. 19 164. 18 6,260. 73 4,463. 86 62. 11 4,525. 97 1,734. 76 125. 84 4,105. 89 2,048. 14 493. 62 1,554. 52 980. 61 0. 05 164. 88 322. 49 50. 91 538. 28 4,604. 31 155. 56 5,298. 15 3,908. 03 46. 77 3,954. 80 1,343. 35 145. 64 4,024. 17 1,891. 80 316. 29 1,575. 51 1,630. 95 0. 05 147. 5 229. 84 49. 41 426. 50 3,640. 42 122. 45 4,189. 37 3,814. 63 45. 55 3,860. 18 329. 19 4. 51 3,540. 21 322. 33 43. 55 278. 78 346. 25 0. 00 48. 64 27. 16 5. 84 81. 64 832. 49 274. 29 1,188. 42 687. 31 9. 52 696. 83 491. 59 16. 64 1,133. 26 340. 77 33. 74 307. 03 357. 62 0. 41 61. 62 35. 24 422. 05 518. 91 149. 77 395. 00 1,063. 68 449. 15 6. 94 456. 09 607. 59 28. 75 1,301. 40 247. 33 16. 40 230. 93 286. 53 0. 41 57. 26 13. 06 181. 17 251. 49 232. 03 75. 31 558. 83 434. 05 5. 93 439. 98 118. 85 39. 08 675. 80 55. 25 4. 52 50. 73 153. 09 0. 45 36. 40 8. 27 47. 08 91. 75 47. 8 35. 85 174. 88 108. 77 1. 07 109. 84 65. 04 28. 83 298. 14 5,184. 53 1,872. 55 7,057. 08 4,105. 89 4,842. 43 3,080. 17 7,922. 60 4,024. 15 2,622. 52 3,043. 04 5,665. 56 3,540. 22 592. 38 342. 00 934. 38 1,133. 26 716. 71 200. 00 916. 71 1,301. 41 448. 16 3. 50 451. 66 657. 79 159. 42 125. 06 284. 48 298. 14 Sourcehttp//www. moneycontrol. com/financials/kingfisherairlines/balanc esheet/KA02KA02 Annexure 5 Comparative P A/c of Kingfisher Airlines Rs. In crores Income Net Sales other(a) Income Total Income Expenditure Raw Materials Power & displace Cost Employee Cost Other Manu.Exp. Sell. & Admn Exp. 56. 69 2,274. 03 680. 54 1,192. 80 997. 34 40. 89 1,802. 99 689. 38 1,108. 82 996. 85 51. 19 2,602. 62 825. 42 1,112. 85 1,062. 74 43. 79 889. 30 244. 96 408. 21 180. 39 45. 94 979. 50 247. 72 617. 56 146. 78 36. 73 625. 45 163. 04 425. 48 114. 38 5. 77 92. 98 31. 76 104. 78 29. 13 Mar 11 6,233. 38 81. 58 6,314. 96 Mar 10 5,067. 92 -333. 30 4,734. 62 Mar 09 5,269. 17 598. 90 5,868. 07 Mar 08 1,456. 28 113. 62 1,569. 90 Jun 07 1,800. 21 342. 10 2,142. 31 Jun06 1285. 42 59. 64 1345. 06 Mar05 305. 55 14. 73 320. 28 BAUDDHIK VOLUME 3, NO. 1, JAN-APRIL-2012 86 EISSN 2277-4955 Misc. Exp. Total Expenses PBDIT stakes PBDT Depreciation Other Written Off get Before Tax Extra-ordinary items Tax Reported Net Profit Shares in issue (lakhs) EPS (Rs) Equity Dividend (%) ob ligate Value (Rs) Per share data (annualised) 4,977. 79 -20. 64 0. 00 -70. 46 2,659. 09 -61. 95 0. 00 -150. 54 2,659. 09 -60. 50 0. 00 -83. 88 1,357. 99 -13. 85 0. 00 13. 90 1,354. 70 -30. 97 0. 00 28. 40 981. 82 -34. 69 0. 00 22. 83 31. 06 -54. 05 0. 00 43. 96 87. 94 5,289. 34 1,025. 62 2,340. 32 -1,314. 70 203. 02 38. 01 -1,555. 73 72. 99 -455. 35