Kingfisher Airlines. King of Good Times??

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  • Topic: Vijay Mallya, Kingfisher Airlines, United Breweries Group
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  • Published : January 10, 2013
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KINGFISHER
Presented By ANISHA MITTAL XI-C
INTRODUCTION
Kingfisher Airlines Limited is an airline group based in India. Its head office is in Andheri (East), Mumbai and Registered Office in UB City, Bangalore. Kingfisher Airlines, through its parent company United Breweries Group, has a 50% stake in low-cost carrier Kingfisher Red. The airline has been facing financial issues for many years. Until 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 lowest market share currently. In May 2009, Kingfisher Airlines carried more than 1 million passengers, giving it the highest market share among airlines in India. Kingfisher also won the Skytrax award for India's best airline of the year 2011.Kingfisher Airlines is also the sponsor of F1 racing outfit, Force India, which Vijay Mallya also owns. 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 has 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.

STARTING OF THE CRISES:
Ever since the airline commenced operations in 2005, the company is reporting the losses. 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 losses of over Rs. 7,000 crore with half of its fleet grounded and several members of its staff going on strike. Following table 1 highlights losses of the company since inception:

Table 1: Net Reported Losses and debts since inception (Rs. In Crores) Year| Mar- 11| Mar- 10| Mar- 9 | Mar- 8| Mar- 7| Mar- 6| Mar- 5| Loss| -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|

DEBT RESTRUCTURING:
In the situation 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 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. As per the contract, lenders have converted Rs. 650 crores debt into preference shares which will be converted into equity when the company lists the on the Luxembourg Stock Exchange by selling global depositary receipts (GDR). Shares will be converted into ordinary equity at the price at which the GDRs are sold to investors. Besides the Rs. 1,400 crore debt which will be converted into preference shares, another Rs. 800 crore 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.

DELAYED SALARY:
Kingfisher Airline has staff strength of 6,000 and spends Rs. 58 crore on salaries a month. According to the first quarter financial results, it has Rs. 173.66 crore under the employees cost head, which has increased from Rs. 163.40 crore during the same quarter last year....
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