Big Corporate Failures
Big Corporate Failures
Kingfisher AirlinesSecond largest share in domestic air
travel.Voted as Indias Best Airline in India NDTV Profit Business
Leadership Award for AviationListed in Top 100 most Trusted Brands
in The Brand Trust Report Before the downfall
Net Reported Losses and Debts (Rs. In
Crores)Year201220112010200920082007Loss2628102716461608188409Secured
Debts5900514848422623592717Bank ArrearsDelayed SalariesFuel
DuesGovernment DuesAircraft Lease Rental DuesFinancial Crisis
Reasons for failureLacking Long Term StrategyNo Long Term
CEO/MDA lack of understanding of customer requirementKFA was
launched as premium business classFrequent Changes of Focus Premium
to Low Cost and vice versaIndians are cost conscious rather than
brand
Reasons for failureMerger with Air Deccan Air Deccan was a low
cost airlineWhile Kingfisher had a brand image of a premium
AirlineIt failed to distinguish between the twoFlights of
Kingfisher were given preference over Air Deccan resulting in loss
of air deccan customers
Reasons for failureExcessive and Costly DebtsOutstanding Debts
of more than Rs. 7,000 CroresDebt Equity Ratio of more 3.2 : 1High
Interest CostFailed to serve interest and loans and coupled with
high losses it became a vicious circleEven Debt Restructuring did
not help
Reasons for failureHigh Operating CostOperating Costs (including
Fuel Cost) was eating more than 90% of revenuesUnprofitable
RoutesKingfisher was flying many unprofitable routes while
competitors kept them confined to profitable routes onlyTurnaround
TimeMore turn around time (Time taken in ground handling)
The DownfallNet Worth eroded in 2011December 2011 Bank Accounts
frozen by Income Tax Department for non payment of duesOctober 2012
- Kingfisher's licence was suspended by the DGCAFebruary 2013
-international flying rights and domestic slots scrapped by
DGCAConfiscation of Aircrafts by Service Tax Department
Banks MoneyMore than Rs. 7500 Crores of Loans (including
Interest) from BanksPNB Rs. 800 CroresDeclared NPA by BanksAlready
Restructured and foregone lots of interest IncomeCollaterals shares
of United Spirits which would fetch only Rs. 500 Crores
Banks MoneyOther probable recoverables:Kingfisher Villa in Goa
and Kingfisher House in Mumbai around 200 CroresPersonal Guarantee
of Vijay MalyaCorporate Guarantee of United Spirits/UB GroupBanks
Claim that Brand Kingfisher and other trade marks pleged with them
and hope to recover around 1000 CroresHowever this claim has been
denied by UB Group.
Way forward for BanksWill have to wait till the department of
revenue initiate recovery of its duesExpected to discuss the issue
with FinMin
Learning for BanksProbably brand image of UB group and Vijay
Malya helped Kingfisher in borrowing such huge debts Banks should
be cautious in lending based on brand imageAviation Industry in
itself is not a profitable one. Due consideration should be given
to this. (PNB has already put it in restricted list)Sufficient
realizable Securities should be taken even from big corporates
