“Many obstacles to the expansion of the company will have presented themselves in the long run, where a debt of Rs 7,500cr has cost Kingfisher airlines delayed salaries, shrinking fleet & a terrible working capital crunch.”
Chairman of Kingfisher Airlines, Vijay Mallya, a “Global Leader of tomorrow” by the World Economic Forum is now under the axe to pull out a sparkle from his highly acclaimed industrial era.
The above quote states perfect for the Kingfisher Airlines Group, as having a five-star airline and a low cost operation airline: Kingfisher Red which proved to drive the company in a financial downrun. Therefore, when Kingfisher Red was made costlier, this caused a great deal of client base shift to low-cost airlines like Spice-jet & Indigo which helped these companies grow their treasuries until today.
After holding a 50% stake in Kingfisher Red ,the company continued to make losses inspite of being the ‘Skytrax’ award holder which has signed recent codeshare agreements with American, Phillippine airlines & British airways.
Early profits earned in 2003, when Kingfisher airlines started, made the top officials invest in Air Deccan in 2007, to acquire under them a low cost airline. This decision was positive in the mind of the investors only because they claimed low-cost carriers could operate as full service airlines which would cater to different segments of the aviation industry and therefore have a profitable future.
Thereby the reasons which were binded down to which caused the crisis to the company were the increase in the price of aviation turbine fuel which rose by 45% , rise in interest costs and various policy and regulatory hurdles put forward by the Indian Government.
There were talks that Alex Wilcox & Nigel Harwood who were the companies top managers were lost due to the chairman’s interference in the day-to-day operations.
The chairman remarked that a debt-equity conversion deal provided banks like State Bank Of India & ICICI a 23.4% stake in the company which also meant that 62% of their value was eroded.
Though the Indian Aviation Industry grew by 18% in January, most of the airlines have been rolling down into the crisis, like Jet Airways has a total debt of Rs14,000cr & has been making continuous losses in the past quarter and half-yearly results. The magic sparkle dust lies in companies like Indigo which is a private company based in Gurgaon, Haryana has continued to make profits since its commencement. The net profits of Indigo airlines stood out at Rs 700cr, being the most profitable airline in the Indian Aviation business. On the other hand Kingfisher airlines reported a Rs1,027cr loss in the same year after about sales of Rs 6,400cr.
Another side to look at this would be the recapitalization of Kingfisher Airlines if the Foreign Direct Investment is raised and foreign airlines are allowed to buy a stake.
The recent Union Budget 2012 provided airlines access to external commercial borrowings of up to $1 billion for their working capital needs. ECBs are cheaper loans and so Kingfisher can clear a part of the costlier domestic loans including the major Rs1500cr loan from the State Bank Of India.
The main worry lies here is the search of potential investors for the company to grow back as the crisis has hit the operating market shares of the airline immensely due to the cancellation of aircrafts which has boiled down to a very minimal functioning capacity financing.