Kingfisher Crisis – Is it the time to Shutdown

Kingfisher is facing a tough time to help its debt ridden airlines fly high again, which was grounded after the government suspended the license. The Kingfisher Airlines, started by the King of good times and liquor baron, Dr. Vijay Mallya on the eve of the 18^th Birthday of his only son Siddhartha Mallya never saw moments of making profit. Despite the fact that the company which acquired quite a huge market share in few years, it never saw years of profit, all thanks to the Government of India’s tax Structure, says Dr. Mallya. Kingfisher airlines is said to have over 7,000 INR in debt and is facing a tough time despite the passing of FDI in aviation by the ministry earlier this month. KFA stocks have slipped to all time low, since its dark future and probability of shut down was revealed in the market. The stock traded at a high of 31, years ago is now at levels of 10.

A Government order suspending its license indefinitely has grounded Kingfisher Airlines, leaving the King of the sky’s future in doubt signalling turbulent times for travelers, employees, lenders and shareholders. Commercial banks which have lent over Rs.7,000 crore to Kingfisher Airlines are closely monitoring the situation and are tightening the noose around its promoter to protect their interest.  The airline’s permit had been suspended with effect from October 20 and would not be revived until it submitted a concrete and reliable revival plan, as per the notification issued by Directorate General of Civil Aviation. As usual, the airline failed to submit a plan for resumption of flight operations and asked for more time instead, which was rejected.

On the other hand, the chairman of UB group, the holding company of King Fisher Airlines, Dr. Mallya is seen enjoying the F1 race across the world traveling in his private jet, which is supposedly flying too high unlike King Fisher Airlines. Also a special magistrate court issued a non-bailable arrest warrant (NBW) against Dr. Mallya including four other directors for non-appearance, in cases relating to bouncing of cheques issued in favor of GMR Hyderabad International Airport Limited (GHIAL). It was reported that the four cheques totaling Rs.10.5  crore were issued since January this year to GHIAL, but the cheques were dishonored when presented for clearance following which legal notices were served on Kingfisher. As the airline did not make the payment, GHIAL filed a case in the special court under the Negotiable Instruments Act in August.

It is estimated that Vijay Mallya’s UB group needs to pump in over Rs. 3,000 crore to get King-fisher airborne again as no foreign operator came forward (after the implementation of FDI) and neither would come forward to invest in the airline in its present state.

Kapil Kaul, CEO South Asia, Center for Asia Pacific Aviation (CAPA) said: “I think restarting a five aircraft operation without a significant recapitalisation of $600 million immediately is meaningless. Kingfisher’s turnaround could cost around $ 1 billion”.

The aviation industry in India is currently experiencing a tough time, thanks to the heavy taxes imposed by the GoI, depreciating rupee and rising crude oil prices. The airline’s exit from the Indian skies will prompt rival airlines to further jack up fares which will be again a sign of negativity for the Indian economy which is currently expected to grow at a minimal level of 5.3%. With the grounding of Kingfisher airlines, the competitors have already taken a long term view on fares which is already high. With Kingfisher airlines completely out from the market, the fares would go up further.

Air India director Mr. Bhargava said, “Government must now take a stand to protect the interests of the over 4,000 employees who remained unpaid for seven months and the banks who have a collective exposure of over Rs. 7,500 Crore”. According to him “The DGCA’s decision came too late. By suspending the license, it has done Mallya a favor as none of the airlines operating in India can revive with so much debt and it would be an impossible task to find any foreign airline to fuse in cash”. Dr. Mallya recently said that the stake sale of UB group to Diageo is not a feasible option to prevent the airline business. He also said that “he is not going to sell his home’s solver to safeguard the airline”. According to him the businesses do suffer losses and he will be dealing it in a professional manner which will be best in the interest of shareholder”.

Payment Problems

• Delayed salary – Kingfisher Airline has not paid salary to its 4000 employee for the past 7 months which resulted in a suicide case as well owing to family distress of an employee due to cash crunch and has piled up crores of due for the airline. Mallya’s recent offering of 3 months’ salary was rejected by the employee on the ground that the festive season is approaching and they too have a family to run.
• Fuel Dues – Hindustan Petroleum Corporation Limited (HPCL) stopped the fuel supplies to Kingfisher airlines owing to the non-payment of dues. Kingfisher airlines has had trouble paying their fuel bills.
• Aircraft Lease Rental dues – Since 2008, it has been reported that Kingfisher Airlines has been unable to pay the aircraft lease rentals on time. Kingfisher Airlines has had grounded aircraft in its fleet as it was unable to meet the maintenance and overhaul expenses and was operating only 7 flights until it was completely suspended by the ministry.
• AAI reports – Kingfisher received a notice regarding accumulated dues of Rs. 255.06 crore post which the airline was forced to start operating on a cash and carry basis, with daily payments amounting to Rs. 0.8 crore.
• Income Tax Department – Legal action against Kingfisher was taken for not paying tax to an extent of Rs. 60 crore.
• Bank Arrears – Kingfisher Airlines had not paid its lenders (lending banks). Until recently banks like SBI, Corporation Bank, Federal Bank, and many more had a combined exposure of over Rs. 4,000 Crore. State Bank of India, India’s largest bank declared Kingfisher Airlines a NPA (Non-performing asset) as the bank is the largest creditor and the leader of the consortium of banks in the DRP (Debt Recast Package) and has an exposure of over Rs. 1,400 crore.

In a nutshell it can be said that Kingfisher airlines is currently undergoing one of the toughest times in its history. Beleaguered kingfisher seems to have seen the end of good times.

It is rightly said:

“Bad times doesn’t seem to end for the king of good times as the cloud of danger still exists over the airline and may lead to shut down”.

Author: Niraj Satnalika

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