Solve this case and write your comments with solution.

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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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suffered a loss of over Rs. 1,000 crore for three
STARTING OF THE CRISES:
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
-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
Loss
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
Exchange by selling global depositary receipts
to the first quarter financial results, it has
(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
Besides the
quarter last year. Kingfisher Airlines delayed salaries
1,400 crore debt which will be
converted into preference shares, another
58 crore on salaries a month. According
173.66
163.40 crore during the same
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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denied that it missed the payments. GECAS had
FUEL DUES:
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
Ltd (a lessor from Singapore), sued Kingfisher
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.

HPCL: In Jul 2011, Hindustan Petroleum
Corporation Limited (HPCL) stopped the fuel

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
December 2011 and part of the arrears.
operational by February 20. With this, Kingfisher's
market share clearly dropped to 11.3%. The
cancellation of the flights was accompanied by a
13.5% drop in the stocks of the company on 20
BANK ARREARS:
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
due, it is unknown so as from where he arranged the
THE CRISIS CONTINUE:
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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Government has refused for bailing and all the
FROZEN BANK ACCOUNTS:
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
Government. So at present there is very tough
IATA SUSPENSION:
situation for Vijay Malya and for the company. Will
On March 7, 2012 IATA suspended ticket
sales of Kingfisher airlines citing non-payment of
new fiscal year bring any solution for the company?
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.
tickets for Kingfisher. This would affect Kingfisher's
business by around 30%. Kingfisher claimed that
Is the Problem of Kingfisher Airlines Industry
Specific or Company Specific?
2.
frozen bank accounts was the main cause of being
What is the Impact of High Level of Debt on the
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
strong possibilities of more difficult situation in the
any organisation.
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
and market share of the company.
BAUDDHIK
of
finding
help,
but
from
where?
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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.
4.
6.
Cross reference can be made taking into account
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.
5.
REFERENCES:
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-
http://articles.economictimes.indiatimes.com/2
011-12-08/news/30490358_1_pilots-industrial-
business/Kingfisher-may-have-to-weather-pilotstorm-next/articleshow/12214372.cms
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
Total Share Capital
Mar '11
Mar '10
Mar '09
Mar '08
Jun '07
Jun '06
Mar’05
1,050.88
362.91
362.91
135.80
135.47
98.18
16.20
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
Equity Share Capital
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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
2,254.26
2,048.14
1,891.80
322.33
340.77
247.33
55.25
682.37
493.62
316.29
43.55
33.74
16.40
4.52
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
88.18
50.91
49.41
5.84
422.05
181.17
47.08
716.36
538.28
426.50
81.64
518.91
251.49
91.75
5,380.19
4,604.31
3,640.42
832.49
149.77
232.03
47.28
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
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
125.84
145.64
4.51
16.64
28.75
39.08
28.83
4,105.89
4,024.17
3,540.21
1,133.26
1,301.40
675.80
298.14
Application Of Funds
Gross Block
Less: Accum. Dep.
Net Block
Cash & Bank Bal.
Total CA
Loans & Adv.
FDs
Provisions
Misc. Expenses
Total Assets
Source:http://www.moneycontrol.com/financials/kingfisherairlines/balancesheet/KA02#KA02
Annexure 5: Comparative P&L A/c of Kingfisher Airlines [Rs. In crores]
Income
Net Sales
Mar '11
Mar '10
Mar '09
Mar '08
Jun '07
Jun’06
Mar’05
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
56.69
40.89
51.19
43.79
45.94
36.73
5.77
2,274.03
1,802.99
2,602.62
889.30
979.50
625.45
92.98
680.54
689.38
825.42
244.96
247.72
163.04
31.76
1,192.80
1,108.82
1,112.85
408.21
617.56
425.48
104.78
997.34
996.85
1,062.74
180.39
146.78
114.38
29.13
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manu. Exp.
Sell. & Admn Exp.
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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
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
72.99
31.28
0.00
-0.97
14.09
0.00
-2.74
-455.35
-700.00
-546.38
-494.45
3.40
3.75
-1.32
-1,027.40
-1,647.22
-1,608.83
-188.14
-419.58
-340.55
-16.79
4,977.79
2,659.09
2,659.09
1,357.99
1,354.70
981.82
31.06
-20.64
-61.95
-60.50
-13.85
-30.97
-34.69
-54.05
0.00
0.00
0.00
0.00
0.00
0.00
0.00
-70.46
-150.54
-83.88
13.90
28.40
22.83
43.96
Depreciation
Extra-ordinary items
Tax
Reported Net Profit
Per share data (annualised)
Shares in issue (lakhs)
EPS (Rs)
Equity Dividend (%)
Book Value (Rs)
Source: http://www.moneycontrol.com/financials/kingfisherairlines/profit-loss/KA02#KA02
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