KINGFISHER AIRLINES – DEAD FOR MONTHS

INTRODUCTION

Kingfisher Airlines Limited was based in India. It is the 5th largest airlines that provides domestic and global, short and long services. Its H.Q. is located in Mumbai, with its parental company being United Breweries Group. UB Group holds 50% stake in low-cost carrier Kingfisher Red. Kingfisher Airlines had the biggest share in India's national airlines market. Though, the airline facing severe financial crisis for couple of years, and at the commencement of 2012, the price of share fell abruptly (Sinha, 2012)The carrier had blackout its set-ups and kept off its staffs for quite a lot of days. The company was suspended as a result of the company’s inability to show-cause notice issued by Government. But its staffs decided to get back to work (Roychoudhury, 2012) The Indian government declared the removal of both national and global airlines privileges assigned to the carrier (P.R.Sanjai, 2014)

FALL OF KINGFISHER AIRLINES

Kingfisher Airlines is counted dead for months, the long-suffering airline owned by Indian beer magnate Vijay Mallya is finally getting supressed. Government confiscated 15 aircraft to recover unpaid debts, most of them are Airbuses. Kingfisher’s fleet of approximately 40 airplanes are marooned for more than a year. Only 10 aeroplanes are possessed by the airliner.  These modern 15 are deregistered and the residual cannot glide because they are traded for parts.ILFC is a leading financier of aircraft and was trying to take over aircraft it lent to Kingfisher and lease it to other airline clients.  Mallya assured that flight crew and engineers that he would pay them in full for at least 8 months of back pay after some of the reportedly threatened to disrupt a cricket match of the Royal Challengers Bangalore, a team owned by the ex-billionaire Mallya (Rapoza, 2013)The Kingfisher fiasco stripped him of his Forbes billionaire status last year. Barring a sudden change of heart from Mallya, who seems unable to save this airline by tapping assets from his United Breweries Holding Company, it is hard to see how Kingfisher Airlines survives the year.In aviation industry assets are hired out and stakeholders and investors know the risk of the business. If an airline company goes out of fund, stakeholders cancel equity and investors lay off assets. The quicker the insolvency the healthier it is as damages are huge. Inappropriately, overstated egos prevented the company to file for insolvency. Vijay Mallya, the colourful organizer of the air company, believed that none of his projects could be unsuccessful. He vowed his private assets and gave special assurances to the investors to extend the unavoidable. The final outcome was that he had to sold the cash cow of the cluster United Spirits to repay a debt of (Indian National Rupee) 80 billion. ₹Many employees did not quit at the right time. They suffered salary logjams that were not expected to be paid and chances of work in other airline company were low. Financiers, fuel dealers, airport workers and other connected parties to Kingfisher Airlines took hit on default of dues. The government believed that a giant airline company couldn't quit for economic failure as it will spoil the reputation of the country. The government's self-image has made it bailout its own commercial airline, Air India. Air India reorganized its debt of 400 billion, which is nearly 4 times the higher the ₹market capitalisation of the aviation industry in India and the reorganisation was done on government security. The reorganization was not escorted by modification in the management or with performance agreements is a strong signal that moral money is actually flung after corrupt money.Air India's bailout has worsened the situation of the airline industry in India. An insolvent company enjoys bailout amenities effects the demand-supply disparity and ruling out better and profitable companies out of the industry. Self-worth has caused Air India to fly as no government unit was permitted to flop was the core of the government.

The Kingfisher Airline and Air India failure are good instances of self-images disturbing sound business sense. The market does not have any self-worth. It encircles businesses that have prospect to provide the revenues and it destroys the same businesses when they do not deliver. Marketers on

bases see their status falling to a huge devaluation of self-images. Marketers cannot accept this devaluation and hence extend their despair by trying to carry on their overstated self-images.Investors must avoid investments in corporations where managements allows self-pride to affect their performance and this includes public sector companies too.Government deferred the authorized license of Kingfisher Airlines. It was surprising that a bankrupt company was permitted to sail for so long, causing unwanted troubles to staffs, investors and stakeholders of the business. Kingfisher was declared bankrupt a couple of years later. That facilitated relocation of scarce resources such as labour, airport slots etc. It aided investors to remain withdrawn from investing hard earned money after bad (Parthasarathy, 2012)

FAILURE OF KINGFISHER AIRLINES

BUSINESS MODEL OF KINGFISHER

The International low cost Carriers business model was followed by KFA. This business model is followed by Singapore Airlines which would have been bankrupted by now. It seems that KFA failed to analyse and understand the business model and acquired Air Deccan. Low cost air carriers make money by using secondary routes, non-primary airports, which reduces their operating costs and the benefits are acquired by the customers for low fares. But kingfisher charged low fares from customers and continued using primary routes, including metros. Instead Kingfisher would have avoided metros, and make use of millions of unofficial routes and since India is a developing country various alternatives could be tried out by exploring new routes. Kingfisher was a luxurious air craft and there was no reason to run on different business models simultaneously. The over ambitious strategy of the management failed to make their mark in the airlines industry (Nayyar, 2011)

FAULTY GOVERNMENT RULES

In India, an airliner wants to start an airlines company that company has to seek numerous procedures and permissions to start their company. Those procedures are delayed and takes lot of permissions and authorities and they are not acquired so easily. There are unusual rules in order to fly overseas, the primary rule is that the airline have to complete minimum five years of domestic flying. Furthermore they have suffocating operational environment, where Government is supporting their official carrier Air India. Many airports in India can afford super jumbo A-38 aircraft but since Air India do not have any of those so the government has not allowed any private airlines to land A-380 in Indian soil. There are no privatized airports since 2006 but after that few airports are privatized which has no authority. The government has different fuel strategies which are partial for Air India. The government must understand that private airlines are not pouring their money to Dubai or Miami, but they will contribute to GDP (Gross Domestic Product) of India which will help India and not aliens (P.R.Sanjai, 2014)

COMPETITORS

Though competition is fierce in Indian Territory, with five carriers fighting one over other. Similarly, Indigo, Go Air, Spice Jet and Jet Airways as old as Kingfisher but they have restructured their business strategy with time and have followed their business model. All are low cost carriers but they have no business class in their aircrafts after so many years of operation. The biggest advantage of low cost carriers in India is that they have not compromised with quality and safety different from other low cost carriers around the world. Though Kingfisher was the favorite carrier for business class travelers it should have remained first class business passenger carrier with five star services. If it had increased its price by 10%, business

passengers won’t mind to pay with their world class service and timely arrival and departure. Kingfisher believed that mass carrier is best than class carrier but they failed to understand that there

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are five different players in aviation market to offer better service at a low cost, it was the only one to serve the class people and to capitalize upon its strengths and USP’s (Anon., 2011)

BUYERS BARGAINING POWERS

Kingfisher launched Kingfisher Red to get into price war against all other domestic carriers. In competition with Air Deccan which was opening tickets at 1, Kingfisher had to open such promotional₹ campaigns. But Kingfisher discarded all the marketing strategies of Air Deccan launching its own marketing strategies, reducing all operational costs. Airline business needs long gestational period. For Kingfisher, airlines business was a totally new venture and it would take some years to reap profits. The business fliers of Kingfisher Airlines used their flier miles, booked cheap tickets, enjoyed with their family but never came back to Kingfisher. For many people Kingfisher was a cheap airline and they preferred Jet Airways which is also cash poor but has a supporting business model. No sooner Kingfisher realized that they made an error to change the business model of Air Deccan they increased charges of Kingfisher Red, and got the similar with other commercial airline. At this juncture, the Kingfisher Red missed a chance and the management was disordered that it would call it a standard carrier or a low cost carrier. Ultimately, in 2012, Kingfisher Red came to an end and declared itself un-operational. It is one of the major instances of unsuccessful merging and became a milestone of disastrous mergers and acquisitions (Choudhury, 2011)

AIRCRAFTS

Airplanes are the assets of Airlines Company. Choosing the right aircraft and inducting requires lot of hard work and decision making skills. Kingfisher began using airbus A-320 and continued using the same aircraft. The business model of Kingfisher does not have any airplane of its own. All the airplanes are dry leased. Dry lease means that the owner of the aircraft leases out the planes to a company for a period of two years without insurance, team, workforce, tools, maintenance etc. in this case airplanes instead of being fixed assets remains as the working assets and plays a vital role in cash flow of the company. Kingfisher’s dues pent up and on the goodwill of United Breweries leased the aircrafts. The amount kept increasing and finally the leaser filed lawsuits against Kingfisher all across the world and enforced to ground many of the aircrafts for nonpayment of dues. Since it does not have any own aircraft it cannot command any bargaining power over Boeing or Airbus but it can restrain from deceit of work. Kingfisher operates both Airbus and ATRs. Kingfisher needs two different kinds of staff since it operates two different kinds of aircrafts if it had depended only on one kind of aircraft it could have reduced its operational cost. In Kingfisher had decided to enter aviation business for a long term, it could have purchased aircrafts from Boeing and Airbus. Kingfisher wasted millions of dollars in acquiring permit for A-380 jumbo aircraft but the government did not allow getting the same in India. For the carriers which are using A-380 like Emirates and Qatar Airways, they have profits in their books, insignificant domestic competition, and operates on a large scale unlike Kingfisher all over the world where competition is high and operation is cost is high (Bhas, 2010)

THE FUTURE RECOMMENDATIONS

(Anon., 2008) Kingfisher is officially bankrupted and out of funds. They are functioning deprived of cash and bank accounts are blocked and have lost their customers. The steps to be taken to revive are:

Approximately accumulated loss is more than 60 billion and outstanding loan amount is more₹ than 70 billion over due to tax authorities, airport committees and fuel dealers, with all the ₹leased fleet does not have a pretty picture of airlines business. If they want to get back to flying business they have to clear all dues and outstanding amounts to fuel companies, IATA, regulatory authorities and aircraft leasing companies.

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They need to raise fresh funds from banks and financial institutions. Banks did give loan to Kingfisher last year by permeating capital which was changed to shares. But because of drop of share prices of Kingfisher Airlines, the investments of banks went on loss. Consortium of banks will not pour any capital after a massive loss. The private promoters have to guarantee to raise further funds.

If some suicidal investors want to pour money in Kingfisher, the airlines could be restructured. So the guarantors and Board of Directors must rearrange the complete business model before they approach any investor. They must analyze and study the airlines models and frame the company in such a manner that investors make money out of it.

The pilot and staff are unpaid for months. Their salary must be compensated with a long term assurance of job safety. Many pilots have joined other good airlines for the sake of earning.

Kingfishers must cut cost on fleet and reduce further investment in getting A-380. Instead it should own few flights as fixed assets and slowly get into a permanent business by buying more number of aircrafts. Initially few aircrafts with minimum number of flights at remote areas through unofficial routes will help them to curtail cost. So it would reduce operational cost and slowly could profit marginally.

The government must give subsidy to cash strapped airliner. It can give some tax benefit to the sinking company, reduce fuel cost for Kingfisher, and reduce their loan burden and rate of interest so that they can restructure their organization.

Bank must convert the entire debt into equity as a part of investment. Banks must take stern steps to reduce all luxuries and low cost tickets provided to customers. Instead economy tickets would be provided with less of luxury facilities and minimum services. If it’s a business class trip, then ticket fares must be high with five star services.

CONCLUSION

Considerably the influence of Kingfisher’s end has been a factor owing to their huge terminations and unpredictable functioning. All the Kingfisher travelers have moved over to other players and market assurance in Kingfisher is at the lowest recede. Though, the prices would descent to rational level due to uninterrupted introduction of new airplane by IndiGo, SpiceJet, GoAir etc and price sensitivity of low cost model.Vijay Mallya’s over interest to regulate the skies before analyzing its cost and cash flow consequences. Inappropriately, Kingfisher’s difficulties increased with descending twist of the aviation industry due to rising fuel prices. Every private airline in India is going through the same catastrophe, but Kingfisher fell out of cash earlier.World-wide air travel industry is going through tough times due to unmatched fuel expense for couple of years, unstable monetary markets and financial downturn. In India since 2005 large numbers of airlines were added but most of them deployed in metro cities causing desperate price war. Every company is suffering from operational damages. In addition the antagonistic industrial situation, the merging of Air Deccan is the main purpose behind Kingfisher’s disaster. Considerable liabilities and repetitive losses of Air Deccan and the fiasco of Kingfisher management in synchronizing and downsizing the two units is one remarkable issue mostly accountable for the existing Kingfisher catastrophe.Closing of Kingfisher resulted in profits and generates development for persisting airlines in India for a transitory period. Prices would show rising tendency for a short time before settlement. A high price command in Indian aviation segment owing to the fact that every functioning airline is continually adding new aeroplane to its fleet and with price sensitivity, there is a danger that higher fares might drop in number of travellers. So, airfares must remain low. FDI equal to 49% in planned carriers in India is now in presence excluding that it confines foreign carriers to capitalize in Indian aviation industry. Even with planned strategy modification of allowing foreign airlines at the request of Vijay Mallya. In the beginning potential stakeholders will take time to analyze their choices and start due meticulous practice. Most of the global airlines are going through same financial situations which are disturbing the Indian airlines sector. Very few carriers have cash

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assets and they are assuming careful tactic to combat financial crisis. Any commercial venture will need investment when the business and its major competitors show profitability which is not the case with the Indian aviation sector at present. The Government of India to escape Kingfisher since private enterprises should prosper or die on their own competences in the market place. For last few years Kingfisher has been given relief by banks, fuel companies and airport operatives, but it could not get over its disaster. In 2010, a confederation of banks accepted an unusual renewal suite for the carrier, which gave them enough chance to restructure their organization but they misused the cash in backing higher damages. Now the dues repairing cost, except there is a considerable equity mixture to lessen the amount of dues, any more mix of money would go into backing extra damages. Kingfisher till date has been unsuccessful to form feasibility of its actions and supporters’ denial to deliver their own assurances replicate their own qualms about the feasibility of the carrier (Vardhan, 2012)

Bibliography

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1/189224.html[Accessed 20 June 2015].Sinha, S., 2012. The Times of India. [Online] Available at: http://timesofindia.indiatimes.com/business/india-business/Kingfisher-Airliness-market-share-lowest-in-country/articleshow/12709142.cms[Accessed 20 June 2015].Vardhan, H., 2012. Zee News. [Online] Available at: http://zeenews.india.com/exclusive/kingfisher-airlines-hurt-by-vijay-mallyas-over-enthusiasm_3485.html[Accessed 19 June 2015].

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