Kingfisher: Problem
• Poor firm and industry financial situation
• All stakeholder groups are dissatisfied with the firm
• Management, Mr. Mallya and Aggarwal were not upfront with stakeholders 2
1
3/27/2014
Kingfisher: Stakeholders Issues
• Customers
• Cancelled 35 flights in Nov 2011
• Raised fares
• Government
• Directorate General of Civil Aviation (DGCA)
• Did not keep in the loop
• Suggested airline shut operations and revoke license due to financial issues and safety concerns
• Employees
• Crew, ground-staff, ticketing executives were surprised by cancellations • Pilots and other employees had delayed salary payments
• 100 pilots resigned
3
Kingfisher: Stakeholders Issues
(cont.)
• Lenders
• Owed $1.70B (crore = 10 M, 1$ = 47 crore)
• 2010 Part of interest converted to equity
• 2011 Refused to convert interest unless promoters put in more equity • Suppliers
• Cash and carry basis for fuel companies
• Unable to pay rentals for aircraft and some suppliers seeking repossession • Airport Authority of India (AAI) had pending dues of $42.5M
• Cash and carry for Mumbai International Airport Limited
• Community and Society
• All India Bank employees opposed bailout
• Service tax department had frozen bank account
4
2
3/27/2014
Kingfisher: Stakeholders Issues
(cont.)
• Owners
• April 2011 Kingfisher traded at $1.02
• November 2011 traded at $0.44
• Holding company
• Went from $6.70 to $1.74
5
Indian Airline Industry Overview
• The Good
•
•
•
•
Passenger volumes grew by 500% since the mid-1990’s
Indian domestic market 9th largest and fastest growing in the world
Year over year increase of 16.6% from 2010 – 2012
2009 Pricewaterhouse Coopers report - Aviation sector high growth segment of India’s economy
• The Bad
• 2011 DGCA report stated financial problems plagued all the airlines
•
•
•
•
•
Jet Airways loss $152M
SpiceJet loss $51M
Kingfisher loss $10M
Air India (government-owned) loss $1.75 – 2B
Industry combined loss $2.5B
• Why the paradox between growth and financial losses?
6
3
3/27/2014
Indian Airline Industry: Growth but not
Profits – Why?
• Over capacity and growth had not caught up with supply
• Government regulations required flying on financially unattractive routes
• Cut-throat fares (possibly due to Air India which received bail-outs)
• High Fuel prices due to government-controlled prices on other products • High taxes on aviation fuel (since airlines believed to cater to rich, price-insensitive consumers and not common citizens)
• Low-cost airline providers were more profitable.
