KINGFISHER AIRLINES FINANCIAL CRISIS

PRESENTED BY:SOURAV GHORAI

KOSHYS INSTITUTE OF MANAGEMENT STUDIESBANGALORE UNIVERSITY

CONTEXT• History• Current scenario• Accumulated debt• Consequence of crises• Start of the crisis• Payment problems• Competitor analysis• Swot analysis• Conclusion• Suggestion

HISTORY• Kingfisher Airlines Ltd. (KAIR) is a private airline based in Bangalore,

India.

• Owned by Vijay Mallya of United Beverages Group .

• Tag line- “FLY THE GOOD TIME”.

• Kingfisher Airlines started its operations on May 9, 2005, with a fleet of 4 brand new Airbus - A320.

• It started its international operations on 3 September 2008 by connecting Bangalore with London.

• Kingfisher Airlines is one of the only seven airlines awarded 5-star rating by skytrax.

• Kingfisher operates 400 daily flights with regional and long-haul international services.

• In May 2009,KFA carried more than 1 million passengers, giving it the highest market share among airlines in India.

• Until December 2011,KFA had the second largest share in India’s domestic air travel market.

• First Indian Airlines to have in flight entertainment systems on

every seat with guest being able to watch TV in flight.

CURRENT SCENARIO

• The DGCA suspended its flying license on October 20,2012.• KFA has temporarily shut down its operations .• Due to financial problem it has reduced the fleet from 63 to

16.

FINANCIAL CRISIS• The Kingfisher Airlines financial crisis refers to a series of

events that led to severe disruptions within Kingfisher Airlines.

• Ever since the airline commenced operations in 2005, it has been reporting losses.

• After acquiring Air Deccan, Kingfisher suffered a loss of over 1,000 crore for three consecutive years.

• By early 2012, the airline accumulated losses of over 7,000 crore.

CONSEQUENCE OF CRISES

• Its half of its fleet grounded.

• Salaries delayed.

• Several members of its staff going on strike.

• Kingfisher's position in top Indian airlines on the basis of market share had slipped to last from 2 because of the crisis.

START OF THE CRISIS

• The start of the crisis was the freezing of the bank accounts of the airline by the Income Tax Department.

• As on 10th Jan 2012, Kingfisher Airlines has service tax arrears of 60 crore.

• KFA has not been depositing service tax collected from passenger with the department since November 2011 on regular basis and instead has been diverting it for other purpose on regular basis.

ACCUMULATED DEBT

• KFA has a debt of Rs 8030 crore.

• KFA has been loosing money from day one and has accumulated losses around RS 8000 crore.

• Cumulative due exceeds Rs 15000 crore.

PAYMENT PROBLEMS

• Kingfisher Airline has staff strength of 6,000 and spends 58 crore on salaries a month.

• 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 Source from the employee income to the tax department.

• HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped the fuel (ATF) supplies for about two hours to Kingfisher airlines owing to the non-payment of dues.

• Bharat Petroleum Corporation in 2009 had filed a case against Kingfisher airlines for non-payment of dues(250 cr).

• Since 2008, it has been reported that Kingfisher Airlines has been unable to pay the aircraft lease rentals on time.

• As a result, Kingfisher had to return the A320 aircraft to GECAS.

• Kingfisher received a notice from the Airports Authority of India on February 2012 regarding accumulated dues of 255.06 crore.

• Kingfisher Airlines had not paid some bankers (Lenders) as per the Debt Recast Package (DRP) with lending banks.

• By Feb 2012, Kingfisher has been declared NPA (Non-performing asset) by following banks

• • SBI• • Bank of Baroda• • PNB• • IDBI• • Central bank• • BOI• • Corporation Bank

SOURCE: MONEYCONTROL

BALANCE SHEET

FY 08 FY 09 FY 10 FT 11 FY 12

-4000

-2000

0

2000

4000

6000

8000

10000

1569.9

5868.074734.62

6314.96 5823.91

1781.46

5822.374747.51

5289.34

7651.81

-188.14

-1608.83 -1647.22 -1027.4

-2328.01

INCOMEEXPENDITUREPROFIT

COMPETITOR ANALYSISATTRIBUTES KINGFISHER JET AIRWAYS SPICE JET

Price 25% higher than jetAirways and Indian

Lower than Kingfisher airlines

Extremely low

Permission to fly to US

NO YES NA

Permission to fly to UK

YES YES NA

IPO Floated Floated Floated

Targeted Customer

Both ends of customer

Both ends of customer

Lower end of customers

Positioning Premium Domestic Segment

Premium Domestic Segment and international Segment

Lowest fares and nofrills

SOURCE:MONEYCONTROL

COMPARISION WITH COMPETITOR

INCOME(CR)

EXPENSES(CR

PROFIT(CR)

TOTAL ASSET(CR)

KINGFISHER

5823.91 7651.81 -2328.01 2947.61

JET AIRWAYS

15477.39 13369.66 -1236.10 12048.61

SPICE JET 4019.11 4541.62 -605.77 708.20

CONTAINER CORP

4377.49 3037.22 877.88 5606.43

COMPARISION WITH COMPETITOR

FACE VALUE(RS)

LAST SHARE PRICE IN NSE(RS)

MARKET CAP(CR)

KINGFISHER 10 13.20 1067.51

JET AIRWAYS 10 350.65 3027.30

SPICE JET 10 34.40 1666.16

CONTAINER CORP

10 1012.55 13161.41

SWOT ANALYSIS

STRENGTH:• Strong brand value

• Support from parent company

• Add 1 million passenger created a year

Weakness• Financial issue due to heavy Debt.

• Laying of employees caused a bad image.

• Unable to generate expected returns on investment done.

• Overspending of funds.

SWOT ANALYSIS

Opportunity:• The Indian aviation industry is growing at a rate of

24% per year.• Large number of domestic untapped routes.• Disposable income especially in middle class has

increases. Threats• Rising fuel cost.• Govt. policies• Least cost carrier.

CONCLUSION

Financial crisis of KFA was due to following reasons:• High fuel prices.• Huge interest outgo due to heavy investment in purchase of aircraft.• Overspending/Expenses • Highly competitive industry• Business model was not effective.• Deregulation Act.• Recession-lose passenger(High operation cost due to low demand).

SUGGESTION

• Foreign Investment .• Fuel efficient planes for shorter distance.• Improve revenue per passenger.• Avoid aggressive expansion of fleets.