Vijay Mallya – liquor baron, industrialist, playboy, member of Rajya Sabha. He was envied by everyone when he was at his peak. But now times have changed along with his fortunes. He might still be the liquor baron but unlike booze, in the airlines sector, you really got to fly to be high.

Kingfisher Airlines Limited is an airline group based in India. Kingfisher Airlines has a 50% stake in low-cost carrier Kingfisher Red (through UB group). Till December 2011, Kingfisher Airlines had the second largest share in India’s domestic air travel market.  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 franchise, Force India, which Vijay Mallya also owns.

 

The airline has been facing financial issues for many years. Ever since the airline commenced operations in 2005, it hasn’t been generating profits. After acquiring Air Deccan, Kingfisher suffered a loss of over Rs. 1,000 crore for three years on the trot. By early 2012, the airline accumulated losses of over Rs. 7,000 crore 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. Shareholders haven’t been getting return on the money they invested, they haven’t made a single penny in profit since the inception of the airlines in 2005.More than a dozen of the aircrafts were grounded due to serious engine problems for which Kingfisher  threatened to sue the engine maker, IAE (International Aero Engines). Kingfisher Airlines owes a sizeable amount of money to state-owned Airports Authority of India and GMR Delhi airport, to oil companies (HPCL, BPCL) that have twice grounded its fleet by not supplying fuel until the money was wired into their accounts. Kingfisher Airlines delayed salaries of its employees in August 2011,for four months in succession from October 2011 to January 2012 and again in the past 4 months. Pilots and staff have already gone on strikes innumerable times until recently. Since 2008, Kingfisher Airlines has been unable to pay the aircraft lease rentals on time. Many companies have decided to stop renting aircrafts to KFA. The CBDT (part of the finance ministry) had frozen many of KFA’s bank accounts. The final nail in the coffin came from the DGCA when it suspended KFA’s flying license last week.

 

Hirai and Wipro’s Azim Premji who decided to practically work for free for a year or two. A notable exception to the raft of CEOs opting for lesser pay is Sanjay Aggarwal, the chief executive of Kingfisher Airlines.  Aggarwal’s pay has actually nearly doubled in the year to end March from a year earlier, according to the company’s 2011-12 annual report.

One wonders if this is the same Dr.  Mallya who four years ago was talking of operating Airbus A340-500 for long-haul direct flights to the United States from India. He had booked five A380s.

All that is now part of his dream which has truly travelled to a very distant past and his vision has become increasingly blurred due to many factors both within and beyond his control. True, Mallya chose to chew more than he could swallow.

Even Mallya did not expect in his wildest dreams that the valuation of Kingfisher Airlines will drop to just $245 million which is even lower than what he paid Captain G R Gopinath for Air Deccan.

Mission “Kingfisher Salvation” was always going to be hard but a few steps in that direction have been taken.In Nov 2010, Kingfisher Airlines had completed restructuring Rs. 8,000 crore of debt, with all 18 lenders agreeing to cut interest rates and convert part of loans to equity. Kingfisher Airlines has already pledged its brand as collateral with its lenders for Rs. 4,100 crore. Aviation in India requires a lot of financial backing due to the various roadblocks like high ATF rates and high airport taxes. Shareholder confidence got a boost last month when the government finally gave a green light to 49% FDI in aviation by foreign carriers. But apparently the foreign carriers seem to have deemed the airlines beyond saving with talks with Etihad and Qatar fizzling out. However, the staff accepting the offer of payment of last 4 months and returning to duty, has boosted the investor confidence and irked the DGCA to consider roll back of the suspension. Another good news comes from FIIs who have more than doubled their stake in the airlines, despite the uncertainties hovering over survival of the airline. Holdings of both HNIs (High Net-worth Individuals) as well as small investors have increased by 4.59 and 3.81 % respectively as compared to June. Merger with United Breweries (UB) is always the fallback option for Mallya if he wishes to see his planes taking flight and not grounded.

IndiGo has paved the way to do operate in India. Jet has also shifted its focus to the low frill sector.  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 the configuration of its Airbus 320 aircraft (around 14 of them in the fleet back then) to 20 business class and 114 economy class seats from 180 all-economy seats. It continuously experimented with its business model but never really came to a conclusion. On the other hand, IndiGo patiently formulated  a  solid business plan in. Its plan was to stick to operating a single configuration aircraft, adopting  point-to-point connectivity model. The airline launched with one aircraft and had a plan to add an aircraft every six weeks, giving them enough time to stabilize. Furthermore, the plan also meant sticking to its low-frills airline identity where meals and drinks were sold on-board and not given for free. More and more airlines across the world have started following this model. It’s high time that Kingfisher also adapted to it if it wants to be reinstated as the King of Good Times.

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