case study on kingfisher

case study on kingfisher

1. GROUP MEMEBERS: Kunal Meghani - 42 Harsh Nakhva - 52 Kashyap Katarmal -18 Gopal Makvana - 33

2. Kingfisher Airlines Limited was an airline group based in India. Its head office is in Andheri (East), Mumbai and registered office in UB City, Bengaluru. Kingfisher Airlines, through its parent company United Breweries Group, had a 50% stake in low-cost carrier Kingfisher Red. Until December 2011, Kingfisher Airlines had the second largest share in India's domestic air travel market. However, the airline had been facing financial issues for many years, and due to a severe financial crisis faced by the airline at the beginning of 2012, this share dropped to the lowest in the market in April 2012. !ntroduction

3. Details of the case study Kingfisher Airlines shut down its operations and locked out its employees for several days when on 24 October 2012, the DGCA suspended its flight certificate. The suspension resulted from the airline's failure to give an effective response to the show-cause notice issued by the DGCA. On 25 October 2012, its employees agreed to return to work. However, in February 2013 the Indian government announced the withdrawal of both domestic and international flight entitlements allocated to the airline. The Sanjay Aggarwal (CEO) quit on 17 February 2014.

4. STARTING OF THE CRISES Ever since the airline commenced operations in 2005,the company is reporting the loses. But the situation became more horrible after acquiring the Air Deccan in 2007. After acquiring the Air Deccan, the company suffered a loss of over Rs. 1,000 crore for three executive years. By early 2012, the airline accumulated the loses of over Rs. 7,000 crore with half of its fleet grounded and several members of its staff going on strike. Following highlights net losses of the company since inception:

5. R easons For The Downfall Of Kingfisher Airlines Frequent Changes On Focus: Kingfisher first launched all economy class with food and entertainment system, later on, they shifted focus to luxury business class on their aircraft, a lot of air travelers appreciated the hospitality, aircraft condition and it’s ambiance when Kingfisher focus was on luxury. After acquiring the Air Deccan they suddenly shifted focus on low-cost air traveling, frequent changes in the hospitality and aircraft ambience made travelers lose their interest in the brand. T hey didn’t focus on highly profitable routes in domestic area, acquired Air Deccan air crafts(Kingfisher Lite) , it use to run at the same time as Kingfisher airlines, there was no proper syndication between Kingfisher Lite & Kingfisher Airlines.

6. DEBT RESTRUCTURING In the situation of loss and tough financial condition, the company went for more loans. Table shows the portion of secured and unsecured loans taken by the company. 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. 8,000 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.

7. 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 13.5% drop in the stocks of the company on 20 February 2012. In response to a situation as bad as bankruptcy, Vijay Malya announced that he had organized funds to pay al the employee's' 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 immediately. By this time, kingfisher had accumulated loses of 444 crore during the third quarter of the fiscal year 2011-12.

8. Acquisition For Expansion Kingfisher airlines acquired the Air Deccan for the sake of expansion. As per the international airline policy, any airlines should have minimum five years of domestic experience in their respective area to get the international routes license. F or the sake of international route license Kingfisher acquired the Air Deccan, they never tried to syndicate these two companies to improve their profits with its merger. Without stabilizing in the domestic market to know the ground realities of the airlines industry, Kingfisher stepped into the international routes where the competition is very high compared to the domestic airways. when they planned about the international routes they hardly have three years of experience, acquisition and expansion these two factors started throwing kingfisher into downfall.

9. Lack of Management There was no single CEO continued for one year in Kingfisher airlines, there was a frequent change in the top level management. Mr Vijay Mallya never taken any serious interference in day-to-day operations. A s Kingfisher was a gift to Siddhartha Mallya(son of Vijay Mallya) by his father on his birthday, Siddhartha Mallya doesn’t have the maturity age to run the airlines business because he is so busy in making Kingfisher Calendar. The company not even thought of making Mr Gopinath (Ex founder of Air Deccan) as CEO of the Kingfisher airlines to bring the company into a profitable business, But lack of proper expertise and experience in the airline industry, lack of management caused the downfall of kingfisher airlines.t

10. DELAYED SALARY 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 Source from the employee income to the tax department

11. AIRCRAFT LEASE RENTAL DUES Since 2008, it has ben reported 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 maintenance and overhaul expenses.

12. BANK ARREARS Kingfisher Airlines 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 crore to 280 crore . Lenders hence had told Kingfisher Airlines to clear its dues before they can release any more money sought by the Airline. By Feb 2012, Kingfisher has ben 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

13. FROZEN BANK ACCOUNTS On March 3, 2012, The Central Board of 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 . 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 airline's fleet would be grounded and al flights cancelled until the crisis came to an end. This would be only one step from permanently closing the airline. AAI REPORTS Kingfisher received a notice from the Airports 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 six months, with daily payments amounting to 0.8 crore.

14. Solution Change the management Change the entire board of directors Management should be given to different or new system Decentralization in authority leasing out their planes (unused or minimally used planes) to other carriers 

15. cancelling all orders of airplanes Transparency and confidence building measures firstly amongst its own employees and then the customers Cut costs by not flying to expensive sectors and airports resulting in huge parking costs and low returns Focus on tier II ND tier III cities where other airlines may n have made considerable inroads and judge the operating costs of the same FDI in aviation must be permitted Solution