kfa crisis

7/30/2019 Kfa Crisis

1/16

The Kingfisher Airlines financial crisis refers to a series of events that led to severe disruptions withinKingfisher 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 (US$189 million) for threeconsecutive years. By early 2012, the airline accumulated losses of over 7,000 crore (US$1.32 billion)with half of its fleet grounded and 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

Frequent changes

Started as a full-service carrier, Kingfisher Airlines then added a low-cost model,expanded it further, only to fold it up and go back to the initial focus of full service - allthis in a period of just six years.

'Long term strategy and laser focus is indeed essential when it comes to running an airlinebusiness. Such frequent change in focus has not helped the airline, which has also been

hit badly by external factors,' an industry analyst tracking Kingfisher Airlines said. 'Treated as a step-child' In a recent discussion with Business Standard , Captain GR Gopinath ( Left, with Mallya

at a press conference ) who sold his low-cost airline Deccan Airline to KingfisherAirlines, said that there was a disconnect between the two arms of the airline models.

'Low-cost aviation business was treated as a step-child. I was telling Mallya that it is nowhis child and there should be equal treatment. Post the merger, whenever there was an AirDeccan and Kingfisher flight at almost the same time-slots, a decision was taken to doaway with the Air Deccan flight in the hope that the passengers will graduate toKingfisher full-service. But just the opposite happened. They went to other LCCs,' saysGopinath, providing yet another example of Mallya's muddle-headed decision making.

The start of the crisis was the freezing of the bank accounts of the airline by the Income TaxDepartment.[1] Following are the year by year financial results of Kingfisher Airlines, all values aredepicted in Indian rupee (INR) crore except EPS, which is in plain INR.[2]

# From To Months Total Income Cost Net Profit EPS

01 Apr-05 Jun-06 15 1,352 1,689 -337 -68

02 Jul-06 Jun-07 12 2,142 2,562 -420 -42

03 Jul-07 Mar-08 09 1,546 1,734 -188 -11

04 Apr-08 Mar-09 12 5,577 7,186 -1,609 -55

05 Apr-09 Mar-10 12 5,271 6,918 -1,647 -54

06 Apr-10 Mar-11 12 6,496 7,523 -1,027 -16


2/16

07 Apr-11 Sep-11 06 3,410 4,142 -732 n/a

Total 78 25,794 31,754 -5,960

Debt recast

In Nov 2010, Kingfisher Airlines has completed restructuring 8,000 crore (US$1.51 billion) debt, with all18 lenders agreeing to cut interest rates and convert part of loans to equity.[3] Lenders have converted650 crore (US$122.85 million) debt into preference shares which will be converted into equity when theairline lists on the Luxembourg Stock Exchange by selling global depositary receipts (GDR). Shares will beconverted into ordinary equity at the price at which the GDRs are sold to investors. Besides the 1,400crore (US$264.6 million) debt which will be converted into preference shares, another 800 crore(US$151.2 million) debt has been converted into redeemable shares for 12 years.[3]

Airline's average interest rate is now down to 11%, helping the airline save 500 crore (US$94.5 million)crore every year on interest cost. Consortium of banks was represented by SBI Capital Markets.Kingfisher Airlines Ltd has informed BSE that the Board of Directors of the Company at its meeting heldon November 25, 2010, has approved a Debt Recast Package (DRP) with lending banks, following a one-time relaxation in restructuring guidelines sanctioned by the Reserve Bank of India. The salient featuresof the DRP include:

Conversion of debt of up to 1,355 crore (US$256.1 million) from lenders into share capital.[3]

Conversion of debt of up to 648 crore (US$122.47 million) from promoters into share capital.

Reschedulement of repayment of the balance debt to lenders over 9 years with a moratorium of 2 years.

Reduction in interest rates.

Sanction of additional fund and non-fund based facilities by the lenders.

The recast plan involved the issuing of the following types of preference shares.[4]

Share type Dividend Quantity Price Recipient

Redeemable Cumulative Preference Shares 8% 575,000,000 10 (US$0.19) Consortium of lenders

Compulsorily Convertible Preference Shares 7.5% 780,000,000 10 (US$0.19) Consortium of lenders

Compulsorily Convertible Preference Shares 7.5% 648,000,000 10 (US$0.19) UnitedBreweries (Holdings) Ltd, Kingfisher Finvest India Ltd

Optionally Convertible Debentures 8% 20,000,000 100 (US$1.89) Star Investments Ltd.


3/16

Optionally Convertible Debentures 8% 30,000,000 100 (US$1.89) Margosa ConsultancyPvt. Ltd.

Optionally Convertible Debentures 8% 30,000,000 100 (US$1.89) Redect Consultancy Pvt.Ltd.

In addition to these issues, 9,700,000 units of 6% Redeemable Preference Shares of 100 (US$1.89) eachissued to United Breweries (Holdings) Ltd. (Promoter Company) were converted to 97,000,000 units of 6% Compulsorily Convertible Preference Shares of 10 (US$0.19) each.

Kingfisher Airlines, in Nov 2011 was attempting for a second debt recast. However second debt recasthas been ruled out by Government of India. Minister of state for Finance made a statement on 09th Dec2011.[5]

[edit]Recast pledge

Kingfisher Airlines has pledged its brand as collateral with its lender consortium for 4,100 crore(US$774.9 million). The brand valuation was done by Grant Thorton in 2010.[5] Reportedly the Brandhas been valued and loan raised worth triple the carriers market value.[6]

On July 6, 2011, pursuant to requirements prescribed under the Debt Recast Package Kingfisher Airlines'founder companies, United Breweries (Holdings) Ltd and Kingfisher Finvest Ltd, have pledged theirentire stake in the airline with certain of its lenders.[7] United Breweries Holdings Ltd held 199,598,555shares (representing 40.1% of total outstanding shares) in the airline and has pledged all the shares tolenders. At the same time, Kingfisher Finvest Ltd held 63,478,570 shares (representing 12.75% of totaloutstanding shares) has pledged its entire holding to the lenders.[8]

[edit]Payment problems

[edit]Delayed salary

Kingfisher Airline has staff strength of 6,000 and spends 58 crore (US$10.96 million) on salaries a month.According to the first quarter financial results, it has 173.66 crore (US$32.82 million) under theemployees cost head, which has increased from 163.41 crore (US$30.88 million) during the samequarter last year. Kingfisher Airlines delayed salaries of its employees in August 2011,[9] and for fourmonths in succession from October 2011 to January 2012 [10][11][12]

In a report to DGCA on 09th Jan 12, Kingfisher had stated that it has paid past (salary) dues to 60% of itsemployees and that by 31st Jan 12, payment of December 2011 salary for all its employees will bedone.[13] Protesting at the delays in payment,Kingfisher pilots started making in-flight announcementsciting "It is their sense of duty towards the guest that is making them fly despite not being paid salariesfor the past two months".[14] Kingfisher also defaulted on paying the Tax Deducted at Source from theemployee income to the tax department.[15]


4/16

[edit]Fuel Dues

HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped the fuel (ATF) supplies forabout two hours to Kingfisher airlines owing to the non-payment of dues. Situation was later resolved byVijay Mallya meeting the CBDT Chairman to unfreeze some A/C's.[16] In the past several years,

Kingfisher airlines has had trouble paying their fuel bills.

BPCL: Bharat Petroleum Corporation in 2009 had filed a case against Kingfisher airlines for non-paymentof dues. High court in an order said that the entire amount (245 crore (US$46.31 million)) had to be paidby Nov 2010 and the airline paid it in instalments.[17]

[edit]Aircraft lease rental dues

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

GECAS: In Nov 2008, GE Commercial Aviation Services threatened to repossess 04 leased planes in lieuof default. Kingfisher Airlines initially denied that it missed the payments.[18][19] GECAS had filed acomplaint with DGCA saying Kingfisher had defaulted on rentals for four Airbus A320 aircraft, andsought repossession of the planes.[20] In Jan 2009, The Karnataka High Court rejected petition byKingfisher Airlines to restrain GECAS from taking any step to deregister and repossess the 04 aircraft indispute. As a result, Kingfisher had to return the A320 aircraft to GECAS.[21]

DVB: In Jul 2010, DVB Aviation Finance Asia Ltd (a lessor from Singapore), sued Kingfisher Airlines forlease rental default. Case was filed in a UK court on Jul 16, 2010 after Kingfisher did not pay for threemonth lease rental for A320 aircraft it leased from DVB.[22]

Kingfisher Airlines has grounded 15 out of 66 aircraft in its fleet as it was unable to meet themaintenance and overhaul expenses.[23]

[edit]AAI reports

Kingfisher received a notice from the Airports Authority of India on February 2012 regardingaccumulated dues of 255.06 crore (US$48.21 million). The airline was operating on a cash and carrybasis for the last six months, with daily payments amounting to 0.8 crore (US$151,200) [24]

[edit]Income tax

On 9 December 2011, MC Joshi,Chairman CBDT announced that ITis considering legal action againstKingfisher for not paying tax and may go for prosecution.[5] As on 10th Jan 2012, Kingfisher Airlines hasservice tax arrears of 60 crore (US$11.34 million). The Ministry of Finance has given a concession toKingfisher and instructed them to pay the dues by 31st Mar 2012. In Jan 2012, Kingfisher paid 20 crore(US$3.78 million) towards its dues for December 2011 and part of the arrears.[25]

[edit]Bank arrears


5/16

Kingfisher Airlines had not paid some bankers (Lenders) as per the Debt Recast Package (DRP) withlending banks. Till the end of Dec 2011, the arrears were estimated to be 260 crore (US$49.14 million) to280 crore (US$52.92 million). Lenders hence had told Kingfisher Airlines to clear its dues before they canrelease any more money sought by the Airline. Ravi Nedungadi, chief financial officer of UB Grouphowever said that the arrears were 180 crore (US$34.02 million).[26] If arrears were not paid in time

(Dec 2011); Kingfisher Airlines would automatically have been treated as NPA, (Non-performingasset).[27] On the last working day of the third quarter of financial year 2011-2012, Kingfisher Airlinesmade one month interest amount to the banks; thus saving the account from turning a non-performingasset[28]

State Bank of India (SBI) on 5th Jan 2012 declared Kingfisher Airlines a NPA (Non-performing asset). SBIis largest creditor and the leader of the consortium of banks in the DRP (Debt Recast Package) and hasan exposure of 1,457.78 crore (US$275.52 million).[29] By Feb 2012, Kingfisher has been decleared NPAby following banks;[30][31]

SBI

Bank of Baroda

PNB

IDBI

Central bank

BOI

Corporation Bank

In December 2011, for the second time in two months, Kingfisher's bank accounts were frozen by theMumbai Income Tax department for non-payment of dues. Kingfisher Airlines owes 70 crore (US$13.23million) to the service tax department.[32] Indian tax body also stated that Kingfisher Airlines isdelinquent[33]

As response, Dr. Vijay Mallya called on the Chairman CBDT and offered to pay up the dues by 13 Dec11[34] Kingfisher bank accounts were unfrozen on 14th Dec 11.[35] Due non-payment, severalKingfisher's vendors had filed winding up petition with the High Court. As on Nov 2011, winding uppetition of seven creditors was pending before the Bangalore High Court.[36] In the past Lufthansa

Technik& Bharat Petroleum Corporation Limited (BPCL) had also filed winding up petition againstKingfisher Airlines[37]

[edit]Other problems

[edit]Erosion of net worth


6/16

In Sep 2011, the Chairman & Managing Director of Kingfisher Airlines made following disclosure to BSE;

The Company has incurred substantial losses and its net worth has been eroded. However, havingregard to improvement in the economic sentiment, rationalization measures adopted by the Company,fleet recovery and the implementation of the debt recast package with the lenders and promoters

including conversion of debt into share capital, these interim financial statements have been preparedon the basis that the Company is a going concern and that no adjustments are required to the carryingvalue of assets and liabilities"[38]

This filing was widely covered by Indian and international print and electronic media and analysts. It wasstated by analysts and media that the company needs capital infusion to remain viable and this haspushed shares to near historic lows.[39] Kingfisher Airlines Lenders later stated that they consider thatcompany is viable.[40] On 15 November 2011 the airline released poor financial results, indicating that itwas "drowning in high-interest debt and losing money". Mallya indicated that his solution was for thegovernment to reduce fuel and other taxes. The government was engaged in assessing whether to bailout the company and other airlines or let market forces determine which ones survive.[41]

[edit]Oneworld alliance

On 7 June 2010 Kingfisher became a member elect of the Oneworld airline alliance when it signed aformal membership agreement. Kingfisher confirmed on the 20th December 2011 that it will join theOneworld airline alliance on February 10, 2012. Kingfisher would have been the first Indian carrier to join one of the big airline alliances.[42] However on February 3, 2012, owing to bad financial situationand two days after IATA clearing house suspended Kingfisher airlines; the airlines participation to

Oneworld has been put on hold.[43] Recent reports indicate that Oneworld is cofirming Kingfisher'souster from the alliance in the coming few days.

[edit]2012 crisis

[edit]Fleet grounding

Vijay Mallya, the Chairman of Kingfisher and UB

During late February, 2012, Kingfisher Airlines started to sink into a fresh crisis. Several flights werecancelled and aircraft were grounded. The cash-strapped airline claimed that the disruptions willcontinue for four days due to unexpected events including bird strikes which rendered aircraft out of service. The airline shut down most international short-haul operations and also temporarily closedbookings. Out of the 64 aircraft, only 22 were known to be operational by February 20. With this,


7/16

Kingfisher's market share clearly dropped to 11.3%.[44] The cancellation of the flights was accompaniedby a 13.5% drop in the stocks of the company on 20 February 2012. The CEO of the airlines, SanjayAgarwal was summoned by the Directorate General of Civil Aviation to explain the disruptions of theoperations.[45]

The State Bank of India, which is the lead lender to Kingfisher airlines said that they would not considergiving any more loans to Kingfisher unless and until it comes up with a new equity by itself. Politicalactivists also claimed that bailing or helping a private airline would lead to problems within theGovernment. By February 27, Kingfisher operated only above 150 out of its 400 flights and only 28aircraft were functional. Reuters reported that if Kingfisher were to shutdown, it would be the biggestfailure in the History of Indian Aviation.[46] It was announced that the direct flights to the smallerairports of Jaipur, Thiruvananthapuram, Nagpur and also to Hyderabad's Rajiv Gandhi InternationalAirport were all shut down and only one/two-stop flights from its main hubs of Delhi and Mumbai wouldoperate.[47] In response to a situation as bad as bankruptcy, Vijay Mallya announced that he hadorganized 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 money. But he apologized to his workers and saidthat he would pay them immediately. By this time, kingfisher had accumulated losses of 444 crore(US$83.92 million) during the third quarter of the fiscal year 2011-12.[48] Reuters then reported thatEtihad Airways was interested in investing in Kingfisher by providing equity in exchange for a stake in theairline. Also involved in the talks was the International Airlines Group, owner of British flag carrier BritishAirways and Spanish flag carrier Iberia.[49]

[edit]Frozen bank accounts

On March 3, 2012, The CBDT of India froze many more Kingfisher accounts as it was unable to pay all thedues as per schedule. Kingfisher was meant to pay 1 crore (US$189,000) per working day. It reportedlymissed the deadline set by the board and could not pay the dues until the evening on February 29. Thisled to more accounts being frozen. The airline neither did comment on the situation, nor pay thetaxes.[50] Aviation minister Ajit Singh warned the airline about the temporary suspension of the licenseuntil the crisis was sorted out. He announced that the rest of the airline's fleet would be grounded andall flights cancelled until the crisis came to an end. This would be only one step from permanentlyclosing the airline.[51]

[edit]IATA suspension

On March 7, 2012 IATA suspended ticket sales of Kingfisher airlines citing non-payment of dues as the

primary reason, and they said that sales services will only be restored once Kingfisher settles ICH (IATAClearing House) account.[52] IATA also immediately directed all travel agents to stop booking tickets forKingfisher. According to preliminary reports, this would affect Kingfisher's business by around 30%.Kingfisher claimed that frozen bank accounts was the main cause of being unable to pay the IATA, andthe airline started making alternate arrangements for the sale of tickets.[53] Soon it became difficult forthe airline to follow the much smaller schedule that it earlier released as even more pilots began to goon strike. A pilot later claimed that from March 12, about 80% of the pilots would not fly as they


8/16

mentioned in their letter to Vijay Mallya. The airline's plans on restating all services by April 4 did notseem too real at the moment.[54]

[55]===Arrest Warrant against Chairman Mr. Vijay Mallya=== On October 12, 2012 a court in Hyderabadissued a non bailable warrant against Kingfisher Airlines and its chairman Vijay Mallya in a case of

cheques bouncing filed by GMR Hyderabad International Airport Ltd (GHIAL). The case pertains tobouncing of cheques worth Rs 10 crore issued by Kingfisher Airlines to GMR as Hyderabad airportcharges. GMR Hyderabad International Airport Ltd, which manages the Rajiv Gandhi InternationalAirport, had earlier moved the Nampally criminal court in Hyderabad and filed a case against Kingfisherfor dishonouring four cheques worth Rs 10.5 crore.[citation needed]

A tale of two airlines: Kingfisher vsIndiGo

What makes one company succeed, while another, in the same operating environment, falter?Sometimes, luck plays a role but in most cases in business history, the difference between survival andextinction is more about discipline versus excess, adaptation versus rigidity. Just look at the divergentstories of Kodak and Fujifilm both legendary firms in the film business. While Fuji realised its days werenumbered and managed to reinvent itself by launching new yet unrelated business lines in things likecosmetics and optical films for LCD flat-panel screens, Kodak is a shadow of its former self because itcouldnt articulate a strategy beyond images.

In India, a similar tale of contrasting approaches and fortunes can be seen in the airline industry.While Kingfisher airlines cannot be relegated to the dustheap of airline history as yet, its abysmalperformance in the last few years makes it stand out in stark contrast to IndiGo Indias most profitableairline. Why did one soar and the other plummet?

Also Read

Related Stories


9/16

News Now

- Frozen bank accounts led to disruptions: Kingfisher

- Not helping any one airline, the whole sector is in crisis: Ajit Singh

- DGCA summons Kingfisher officials, govt says no bailout

- Banks come to Kingfisher's rescue

- Blessing in disguise for aviation industry

- Kingfisher flies into more crisis

Mallyas many models

While both airlines declined to comment for this story, an analysis of the operating history of bothKingfisher and IndiGo sheds some light on that question.

One answer has to do with Kingfishers schizophrenic approach to a business model. Kingfisher was

launched as an all-economy, single-class configuration aircraft with food and entertainment systems.After about a year of operations, the airline suddenly shifted its focus to luxury. It changed theconfiguration of its Airbus 320 aircraft (around 14 of them in the fleet back then) to 20 business classand 114 economy class seats from 180 all- economy seats. Kingfisher made too many changes in their business model and strategies and that led to strategic weakness, said KapilKaul, Chief Executive Officer

(South Asia) for Centre for Asia Pacific and Aviation, an airline consultancy firm. This had a major impacton the airline. When an airline keeps c hanging its model and takes to random expansion, there is notime for the airline to stabilise, said an industry insider, on condition of anonymity.

On the other hand, IndiGo preferred to wait and have a solid business plan in place. Its plan was to stickto operating a single configuration aircraft, providing point-to-point connectivity. The airline launchedwith one aircraft and had a plan to add an aircraft every six weeks, giving them enough time to stabilise.Furthermore, the plan also meant sticking to its low-frills airline identity where meals and drinks weresold on-board and not given away for free.

After Kingfishers plunge into luxury came its next folly a merger with Air Deccan, an airline formed byCaptain G R Gopinath in 2003. The all-economy configuration of Air Deccan was rebranded and calledKingfisher Red, which continued to operate as its low-cost wing till recently. Kingfisher ended upspending Rs 550 crore on an airline that had losses of over Rs 550 crore.


10/16

It is widely believed that Kingfisher merged itself with Air Deccan so that it could classify as an airlinewith five years of domestic flying in 2008, thus fulfiling requirements to fly international routes. The factthat Jet had meanwhile swallowed Air Sahara didnt help, fuellin g a competitive race to be the biggestairline around. Global developments at the time simply exposed the soft underbelly of the airline.Whenever Kingfisher made an important and strategic move (to acquire Deccan and then the financial

restructuring with banks converting part of debt into equity, for instance), the overall market conditionschanged, said KapilKaul. Essentially, jet fuel prices began to sky -rocket and soon touched $150. Thencame the 2008 recession that made fundamentals in the airline industry worse, which is when the airlinelaunched its international operations.

It didnt help that Kingfisher was very aggressive with its international expansion, launching long -haul aswell as short- haul flights. Kingfisher wanted a lot of rights in on e go. We also advised them to begradual but they were hell bent on aggressive expansion, said a senior civil aviation ministry official, on

condition of anonymity. IndiGo, however, continued its gradual expansion and waited for five years tolaunch its international operations, although, arguably, the airline had to wait those five years becauseof airline industry regulations. Still, it wasnt tempted to find loopholes to expand aggressively in what

was a rapidly growing market.

IndiGos measured take -off

An experienced and professional team in the cockpit is a basic requirement for any airline to be able towithstand stormy skies. Yet, things went out of control further because Kingfisher never had a

professional airline management in place, said Chen nai-based aviation analyst Mohan Ranganathan,who is part of various government committees on aviation. Kingfisher Airlines Nigel Harwood wasappointed when the airline was launched in May 2005, but left after over a year. The airline never hadanother CEO till September 2010 with Mallya insisting on running the airline until finally relinquishingcontrol by appointing Sanjay Aggarwal as CEO.

IndiGos approach was more measured and professional. Its first CEO, Bruce Ashby, was in India 18months before the launch, and an experienced team at the management/board level has been keyreason of IndiGo's success, said Kaul, adding that the biggest reason for the airlines success is its sharp

focus on key deliverables like on-time performance, low fares, consistent onboard and ground service.

This slow and steady approach has made IndiGo the second-largest airline in terms of passenger carriagein a matter of over five years (it commenced operations in August 2006) with a fleet of 50 aircraft.IndiGo is behind domestic market leader Jet Airways, in business since 1993 and operating a fleet of 100


11/16


12/16

Predictably, the Gurgaon-based carrier which launched in 2006 is the most profitable airline in thecountry. In the last financial year, the airlines profits rose from Rs 551 crore to Rs 650 cror e, the thirdstraight year that the airline was in the black.

Kingfisher Airlines on the other hand is awash in a sea of red. It recorded a loss of Rs 1,027.40 crore in2010-11 and has losses of Rs 1,175 crore for the first three quarters of the current fiscal already, withaccumulated losses of around Rs 6,000 crore. Its debt burden is now over Rs 7,000 crore and it recentlyreported a reduction in major sectors. Its financials are so bad that Oneworld Alliance which operatesover 9,300 daily flights, carrying 335 million passengers on a combined fleet of over 2,400 aircraftglobally has declined to admit Kingfisher into the alliance.

Some companies just fail to learn either from the examples that its peers may have set for theindustry, or from its own past mistakes. Now, Kingfisher has decided to change its model yet again discontinuing its Kingfisher Red brand and completely converting its fleet to a dual class, full-serviceconfiguration.

This, industry observers feel, will reduce the chances of a revival since 75 per cent of domestic capacityis in the low-cost sector and international low-cost carriers are launching flights in the short-haulinternational sector as well, namely in West Asia and Southeast Asia.

Thats not good news for an airline thats struggling to survive.


13/16

3 Way Approach to Kingfisher Airlines ( Possible solutions for KFA's existing issues:

1. KFA can look out for some joint ventures (like the way Spice Jet had investments from Sun Group -Leading media in south) from a different business where in they're ready to take some 10 to 15% stakein KFA.

2. Efficient use of Human resource - Can employ support staffs on need for the hour basis (paid on

numbers of hours worked) and not on monthly salary. They can be contract workers and not employeesof KFA so that when number flights per day is more then we can use more support staff, and less duringnon traffic.

3. Keep the Brand Legacy - People always lookedup to KFA for better experience, try to continue byincreasing the no. of flights to metros and other towns where the business class passengers are more,once they come out of fund flow issue, they can look out for expanding to more new destinations.

Corporate Affairs Minister M VeerappaMoily indicated on Saturday that the cash-strapped Kingfisher

Airlines was "not professionally managed" and the onus was on promoter Vijay Mallya to convince thelenders.

Asked if mismanagement was responsible for Kingfisher's troubled times and that the carrier should beallowed to fly into the sunset, Moily said on the sidelines of a function: "that's not our (Government's)desire; it (Kingfisher) has to survive".


14/16

"But the only question is, you know, he (Mallya) has to take some proactive interest; he has to manage itwell", he said.

"The whole difficulty with some of our airlines is that they are not professionally managed, whichinclude Indian Airlines and Air India. I think we need to work on these things", Moily, a former KarnatakaChief Minister, said.

Noting that IndiGo was making profits, he said other airlines have to learn a lesson from that carrier and"take it forward".

Moily said Mallya also met him and he suggested "somethings" to the Kingfisher Airlines Chairman. "He(Mallya) has to give a possible solution to bankers (the lenders) and also to others", he added.

The Vijay Mallya-owned airlines has a total debt of about Rs 7,057 crore and accumulated losses of about Rs 6,000 crore.

State Bank of India, the lead lender to Kingfisher Airlines, has said it would not consider any fresh loansfor the debt-laden carrier until it raises new equity itself.

No professional management

The biggest reason for Kingfisher Airlines decline is clearly Mallyas hubris and wrongmanagement calls at every step of the airlines seven year existence. The beer-baron has neverbrought in professionals to run the carrier- even the CEOs he hired like Nigel Harwood (whocame from Airbus) or more recently Sanjay Aggarwal (from SpiceJet), are never allowed to taketheir own decisions. KFA has been micro-managed by Mallya. It has also never made a singlerupee of profit. He got the model wrong, the equipment wrong and the strategy wrong- sealingthe airlines fate in times that were tough for even the best run carriers.


15/16

Reason for fall in share price

Kingfisher Airlines hit a life-time low Thursday, falling over 7.5 per cent to Rs. 10.20. Shares in the carrierhave plummeted more than 80 per cent since the beginning of 2011, shrinking the airline's market valueto Rs. 700 crore.

Kingfisher, which was India's No. 2 airline until a year ago, has been the biggest victim of turbulence inIndia's aviation industry, where six main carriers face a total debt load of $20 billion and $2 billion inannual losses.

Here are 10 reasons for the sharp drop in stocks today:

1) Worst-ever quarterly loss : The airline posted its worst-ever quarterly loss on Thursday on the back of huge cuts in the number of flights.

2) Losses exceeded estimates : The Vijay Mallya owned high-profile airline lost Rs. 1,150 crore in thequarter to end-March, compared with a loss of Rs. 360 crore a year earlier. Analysts had expected a lossof Rs. 410 crore.

3) The company said its net loss for the year to end-March was Rs. 2,330 crore, more than double its lossin the previous fiscal year. That was substantially more than the Rs. 1,540 crore loss forecast by twoanalysts, according to Reuters.

4) Crude, rupee hit earnings : The carrier blamed losses on high fuel prices, a weak rupee and an"unprecedented, tough operating environment," but said it would return to normal services within 12months.

5) Urgent need for capital : Kingfisher needs at least $500 million or Rs. 2,800 crore immediately to keep

flying, according to the Centre for Asia Pacific Aviation, but there has been no sign of funding in the nearterm.6) Analysts negative on the stock: Analysts say it's difficult for the company to survive. "If the companypromoter brings in sufficient funds, to the tune of Rs. 2,000-3,000 crore, only then there is a chance thatthe company comes back on track", a Mumbai-based aviation analyst told Reuters.

"Until and unless the promoter himself puts in money, investors will not come. If he invests, say, Rs. 250crore, only then investors will get the confidence to invest another Rs. 250 crore," said Sharan Lillaney,an aviation analyst with Angel Broking.

7) No signs of FDI yet : India's plans to allow foreign airlines to invest up to 49 percent in local carriers,which Kingfisher has lobbied hard for, has not yet to be approved, adding to its funding crisis.

8) The airline has not been able to benefit from the strike in Air India. Instead, Jet Airways - the country'stop carrier - has gained from the strike.

9) Low-fare and mostly domestic carriers such as IndiGo, the only airline making money in India, andSpiceJet have gained market share as Kingfisher and Air India struggle.

10) Kingfisher Airlines is now the smallest carrier in India by market share.


16/16

If Kingfisher fails to turn the airline around, its banks - which have $1.3 billion in loans outstanding -would be left to pick over the carcass in a country that does not have a formal bankruptcy process.

kfa crisis

Documents