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The Life and Times of Kingfisher Airlines

Published on Monday, December 22, 2014
Some two years back it used to be common sight at the airports to see flight attendants in blood red crisscrossing the airport floor and the bright red ticket booth – always reminded me of festive cheer; now days the airports look a little less colorful.

The Kingfisher Airlines have been grounded since October 2012 – and as of now with the Mumbai International Airport Ltd. deciding to sell a mid-sized carrier – the red bird looks like it’ll remain flightless in the near future too.

The Kingfisher Airlines or KFA for brevity’s sake – represented Vijay Mallya’s ambition to fly high; but flying high also means having to deal with turbulent weather conditions and that is where KFA met its defeat and crashed and burned.

Let’s take a look at what happened to the KFA – and its impact to the banking sector – it all comes down to us the banking guys!

The Good Times:

  • KFA was set up in 2003, took its maiden flight in 2005, got listed in BSE in 2006.
  • Its slogan is ‘Fly the good times’.
  • It is a subsidiary company of United Breweries Ltd., Chairman of which is Mr. Vijay Mallya. He was (or is it still ‘is’?) also the Chairman of the KFA.
  • It operated on domestic as well as international routes and in the inception years had a majority market share. I still have the bright red year phones they gave as complementary gifts to their passengers!
  • And in 2007 it had plans to take over Air Deccan – a low cost airlines.

The Bad Times:

  • KFA has never made any profits since it began its operations in 2005 – it has always shown losses.
  • Which is not unheard of in airlines industry – because of some very common causes such as:
    • High fuel/ oil prices which are always ever increasing;
    • Rupee depreciation – again not really any airline co.’s fault; and it further increased lease rentals and fuel costs;
    • High landing airport fees;
    • Heavy competition in the market – we had Indian Airlines, Jet, Spice etc…;
    • Inability of the airlines to pass on the heavy costs onto the passengers;
    • Airlines price wars/ rate cutting – Indian Airlines kept its prices very low;
    • Airlines – always have huge capital outlay – it’s just required – a heavy initial capital infusion, which even before it starts operating runs into billions of dollars!

      But KFA, apart from these common ailments had other woes too:
    • It took over Air Deccan in 2007 which was already a loss ridden fleet;
    • It plied on routes which were economically not viable;

  • Thus continuous losses – falling share prices – outstanding dues were just the beginning of the ugly times.

The Ugly Times:

  • KFA faltered in paying Service Tax collected from passengers;
  • KFA ran afoul with the Income Tax Department;
  • KFA’s relation with the Airport Authority of India soured after its inability to pay dues running into crores;
  • KFA got demand notices from all these departments and agencies and offices;
  • It laid off some 100 pilots in 2009 and;
  • KFA’s inability to pay salaries to its staff led to the pilots staging protest, staff boycotting work calling in sick and basically stopping operations;
  • Led to passenger dissatisfaction as flights got canceled,
  • KFA lost prime routes, passengers, market share …
  • International flights were stopped;
  • Their planes started being repossessed by lessors because of non-payment of rentals;
  • KFA could not even generate enough funds through its operations to pay salaries and cover maintenance and overhaul expenses; i.e., not enough cash to carry on day to day operations;
  • Hindustan Petroleum Corporation Ltd., Bharat Petroleum Corporation – stopped giving fuel due to mounting unpaid fuel charges;
  • With the Government refusing bailout – no restructuring plan working out and no foreign investor willing to invest – the DGCA cancels KFA’s flying permit in October 2012.
 But it does not end here…

The Ugliest Times:

  • The Income Tax department does not take kindly to non-payment of dues – so demand notices and penalty kept piling on and in 2013, I.Tax Dept. filed a criminal case against the Chairman Vijay Mallya.
  • I. Tax Dept. also froze the parent company’s bank accounts which created problems for the other businesses of UB group; but later defroze it…;
  • DGCA deregisters airplanes leased by KFA.
  • KFA senior executives resign at this crucial juncture;
  • And employee’s salaries are still unpaid till the early 2014.

    Now the banks enter the scenario is the ugliest phase …
  • KFA had accumulated losses of more than Rs. 6000 crores
  • It’s outstanding debt runs into more than Rs. 7500 crores;
  • The consortium loan being forwarded by 17 banks led by SBI;
  • Thus obviously SBI had the maximum exposure at an outstanding of Rs.1457.78 crores, followed by IDBI, PNB and BOB; being the four high exposed lenders.
  • Later on IDBI gave a loan of Rs. 950 crore to the ailing airlines outside the consortium which is now being investigated by the CBI.
  • KFA had been declared an NPA in 2012 by SBI;  followed by IDBI. BOB, PNB, BOI, Central Bank of India and Corporation Bank;
  • KFA was India’s top NPA for the year ending 2014.

And then…

  • In August/ September 2014, United Bank of India identified Mr. Vijay Mallya/ UB Group as a ‘wilful defaulter’.
  • A ‘wilful defaulter’ is one who had the funds/ finances or resources to pay the dues but did not pay intentionally.
  •  A ‘wilful defaulter’ tag is a huge blow to the UB Group, i.e., all the companies under the Parent Group, because it means:
    • Mallya or the companies on which he sits as a Director, cannot avail further finances from any bank or financial institution; banks cant even give working capital loans to a company which has a wilful defaulter in its Board.
    • Debarred from institutional finance from any scheduled/ commercial/ development banks, not even from NBFCs.
    • A wilful defaulter cannot float any new business venture for the next five years from the date RBI publishes the name in the list of ‘wilful defaulters’. (That is cruel.)
Moreover, RBI Governor Raghuram Rajan has called for measures to tighten rules with regards to availing funds from capital market for a wilful defaulter after the KFA case.

Latest blow to Mallya himself, which could probably be a repercussion of him being tagged a wilful defaulter is him resigning from the post of Director of Mangalore Chemicals and Fertilizers Ltd., in December 2014.

The Kingfisher Airlines is firmly grounded and doesn’t look like it would be taking flight any time soon if never at all.

Current worry in the aviation industry is of that of SpiceJet – another red hued airlines – which many believe is going to go the KFA way – what with the early signs of working capital inadequacy, (an infusion of Rs. 600 crores required!) and Banks unwilling to fund the cash strapped airlines company – who knows in another year maybe another red bird will have its wings clipped.

As for you guys – the banking interview guys – remember that KFA probably started the trend of huge NPAs that is ailing the banking sector as of today.

That is all for today …

Have a good Sunday!

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