Kingfisher Project

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

EXECUTIVE SUMMARY: SUMMARY:--

Our Research is mainly based on the intensive study of crisis faced by  Kingfisher Airlines owned by Business tycoon Vijay Mallya. Kingfisher Airlines  began its operations on 9th May, 2005 and ever since 2005 2 005 Kingfisher Ki ngfisher Airlines Airli nes has ha s  blazed trial of innovations and introduced a range of market. On June 15, 05 it  became first and only Indian Airline to order Airbus. As of July 2007, Kingfisher  operates only on domestic routes; however ho wever it started its international operations on  3rd September, 2008 with a flight between Bangalore and London, and later on  added new international destinations, namely Hong Kong, Dhaka, Colombo, Singapore, Dubai and Bangkok. However, on 15th September 2009, Kingfisher  Airlines withdrew the London service. As life is full of up’s and down’s Mr. M r. Mally M ally a

 also is now facing the Question of its survival in the Airline sector due to its Losses  and heavy Debts.

1

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

OBJECTIVES:-

 a. To create awareness regarding the crises of Kingfisher airlines.

 b. To obtain information regarding the crises of kingfisher airlines.

 c. To extent knowledge.

 d. To find out major areas, which has led to crises?

e. To find out a proper effective solution.

 f.  Effect of Kingfisher Airlines crises on Airline sector.

2

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

RESEARCH METHODOLOGY:-

 Research Methodology deals with collection of Data which are of two types  Primary and Secondary data.

Our research is based on secondary type data collection which includes  second hand data. dat a. In simple s imple words it is a data which is not collected directly from a user. It’s collected via Newspapers, Magazine, Websites, Expert’s advice, old 

 research literature, etc.

Our data is collected through Websites and Newspapers.

3

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

INDEX:-

Sr. No.

4

Topic

Page No.

1.

Review Of Literature.

5

 2.

Findings.

12

 3.

Analysis & Interpretations.

14

 4.

Recommendation.

17 

 5.

Conclusion.

18

6.

Bibliography.

19

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

REVIEW OF LITERATURE: Kingfisher Airline was established in 2003, owned by the Bengaluru based  United Breweries Group. It began its operation on 9 May 2005, following the lease  of four Airbus A320 aircraft. Kingfisher Airline became the first and only Indian  airline to order the Airbus A380. On 7 June 2010 Kingfisher became a member elect of the Oneworld airline alliance when it signed a formal membership  agreement. The Airlines serves 63 domestic destinations and 8 international   destinations in 8 countries across Asia and Europe.  Kingfisher Airlines have won  many awards and achievements King Club has won Top Honours at the  21st Annual Freddie Awards in the  Japan, Pacific, Asia and Australia  region.

Kingfisher

Airlines

has

 received three global awards at the Skytrax World Airline Awards 2010  and many more achievements are in  Kingfisher Airlines bag.  Kingfisher Airline Listed in the top 100 most trusted brand in The Brand  Trust Report. Since 2010 Kingfisher Airlines faces some ups and downs in Nov 2010.  Kingfisher, 'the king of good times' has managed to change its i ts tagline to 'the king  of bad times'. The UB spirits tag line can be used very appropriately for what  Mallya is currently going go ing through thro ugh with his Kingfisher Airlines. Airl ines. What made the t he fall   of the King of good times?

5

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

 Kingfisher Airlines is one of the only seven airlines awarded 5-star 5 -star rating rat ing by Skytrax. Kingfisher operates more than 375 daily flights to 71 destinations, with  regional and long-haul international services. In May 2009, Kingfisher Airlines  carried more than 1 million passengers, giving it the highest market share among  airlines in India. The airline started commercial operations in 9 May 2005 with a  fleet of four new Airbus A320-200s operating a flight from Mumbai to Delhi.  Kingfisher

Airlines

has

 accumulated loss of over Rs 4,283  crore (Rs 42.83 billion) at the end   of March 31, 2011 and never made ma de even a rupee in profit since it was launched in 2005.  In Nov 2010, Kingfisher  Airlines

has

completed 

 restructuring 8,000 crore ($1.62  billion) debt, with all 18 lenders  agreeing to cut interest rates and convert part of loans to equity.  In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped the  fuel (ATF) supplies for about two hours to Kingfisher airlines owing to the non payment of dues. Situation Sit uation was later resolved. In the past several years, Kingfisher Ki ngfisher  airlines have had trouble paying their fuel bills. Bharat Petroleum Corporation in  2009 had filed a case against Kingfisher airlines for non-payment of dues. High  court in an order said that the entire e ntire amount ($49.69 million) m illion) had to be paid by Nov  2010 and the airline paid it in installments.  In Nov 2008, GE Commercial Aviation Services threatened to repossess 04 leased planes in lieu of default. Kingfisher Airlines initially denied that it missed the  payments. In Jul 2010, 2 010, DVB Aviation Aviatio n Finance Fi nance Asia Ltd (a lessor from Singapore),  sued Kingfisher Airlines for lease rental default. Case was filed in a

6

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

UK court on Jul 16, 2010 after Kingfisher did not pay for three month lease rental   for A320 aircraft it leased from DVB. Salaries were normally credited to the accounts of its employees on the 7th  day of every month. It has also been alleged that the tax company comp any deducted from the  salaries wasn't being paid to the tax department. Its total debt rose to an alarming  proportion before the Reserve Bank of India approved debt restructuring by public p ublic  sector and private banks in early 2011. After recast, Kingfisher Airlines total debt  reportedly came down to Rs 7,057 crore which is still considered very high for a  private domestic carrier.  In

the

 restructuring

done

debt by

 banks, 13 in all, they agreed   to convert a big part of their  debt

into

 acquiring

equity the

by

Kingfisher

 Airlines share at Rs 63 per  share as against the then  prevalent price of Rs 40. The banks, in all, hold over  24 percent of the airline equity. But between then and now, the share value has eroded sharply to around Rs  22 which is just one-third o ne-third of what it was when the shares were given gi ven to them as part pa rt  of debt restructuring. So one can imagine how the banks have also suffered a  serious blow.

7

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

 Kingfisher Airlines has delayed salaries (for Jul 2011) of its employees in  Aug 2011. The management stated that it does not have the money, and has not  given any date for the payment. Kingfisher airline had earlier stated that due to the  bank strike, the salaries could not be processed. Salaries were normally credited to the accounts of its employees on the 7th  day of every month. It has also been alleged that the tax company comp any deducted from the  salaries wasn't being paid to the tax department.  After all, about two months back, media reported the observations made by  Kingfisher Airlines' auditors -- namely, B K Ramdhyani & Co. In accounting  parlance, they asked if Kingfisher Airlines could be even described as a 'going  concern' and these remarks were published in the 2010-11 annual report of the  company.  A 'going concern' refers to a company's ability to continue functioning as a  business entity in the near future and it is extremely rare that auditors make such  mention in the passing. Welcoming the Prime Minister Dr Manmohan Singh's recent statement that  the Government would find ways to solve the t he aviation industry's financial troubles,  he said: "The Prime Minister is an economist who understands the importance of   connectivity."  About the dues to oil companies, com panies, he said the t he airline has paid two state-owned  s tate-owned   oil companies Indian Oil and Bharat Petroleum in i n full. "We don't owe those single  paise." On the Rs 600-crore worth of unsecured dues to HPCL, the Chairman said   the oil firm has been given bank guarantees and our unsecured credit has now  come down to Rs 40 crore only.

8

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

The chief of the UB Group, which

runs

Kingfisher,

also

 announced that the company has  applied to the Directorate General of   Foreign Trade (DGFT) for direct import of jet fuel, which would reduce  fuel costs drastically. Jet fuel costs  are almost 50 per cent of the total   operating costs of the airline. Mallya  also said there were varied credit lines with various suppliers and vendors of   the airline and refuted reports that  certain lessors wanted to take back some of the leased aircraft in the Kingfisher  fleet.  Referring to the cancellation of more m ore than 200 flights flig hts over the past week, he  justified the move saying it was a commercially prudent decision. The entire restructuring also included a reduction in interest rates. The  banks took a revenue loss of around Rs 500 crore when the debt was converted into equity. The bankers of Kingfisher, who met in Mumbai on Saturday, are holding  further rounds of talks on its debt restructuring. Top government officials said the troubled private carrier may get support  from public sector banks as finance minister Pranab Mukherjee had put in a word.  But the government is in a fix as any incentive offered to Kingfisher would mean  other airlines, too, would ask for the same.  Kingfisher is looking for additional working capital to tide over its cash  crunch. It has approached lender banks for a reappraisal of working capital 

9

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

 requirements following a surge in the price of jet fuel in recent months.  Last month, it axed its low-cost  service Kingfisher Red to maximise  revenues from full-fare flights. Top  officials said the airline was also  contemplating

laying

off

a

few

 thousands employees to stay afloat. On Sunday, Kingfisher cancelled 40 more  flights taking the total to over 250 in  one week and putting thousands of   passengers to inconvenience. “We cancelled flights not because we could not afford to. Even today

 Kingfisher is operating the rest of its schedule ... We could have handled the  situation better. But it (flight cancellations) was a commercially prudent decision," decisio n,"  Mallya said.

10

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

DEBT CONSTRUCTION

 Kingfisher has been asked by its creditors to raise $160 million in equity.  Hemant Contractor, managing director of creditor State Bank of India, had said   the airline was considering a proposal to sell real estate, es tate, but Mallya Mall ya denied the firm was considering that course of action. The carrier, which has never turned a profit since its launch in 2005, saw its  fuel bill jump 70% in the September quarter from a year earlier. While passenger revenue rose 9%, its revenue per average seat kilometre fell  by 16% from a year even as it’s cost per average seat kilometre rose 8%.  Earlier this year, Kingfisher, India’s No.2 carrier by market share, cut its

 debt through a restructuring by b y issuing shares s hares to 14 banks, including State Bank of   India and ICI CI CI Bank, the country’s two biggest lenders.  Kingfisher’s net loss in the quarter ended 30 September deepened to t o Rs. 469

 crore ($93 million) from Rs. 231 crore in the year-ago period. Its loss was its i ts biggest  since the March 2010 quarter. “While all airline s have taken a deep hit this quarter because of high fuel 

 prices, Kingfisher is in such a bad shape that they need to look for funds to stay -based Quantum Securities. afloat,” said Neeraj Dewan, director at New Delhi -based

11

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

FINDINGS:MOUNTING LOSSES

Since inception, Kingfisher Airlines is yet to post profit on annual & total   cost basis. Following are financial results of Kingfisher Airlines, all numbers are in Indian rupee (INR) crore:crore:-

Sr. No.

From

To

Months

Total Income

Cost

Net Profit

01

 Apr-05

Jun-06

15

1,352

1,689

-337 

02

 Jul-06

Jun-07

12

2,142

2,562

-420

03

 Jul-07

Mar-08

09

1,546

1,734

-188

04

 Apr-08

Mar-09

12

5,577

7,186

-1,609

05

 Apr-09

Mar-10

12

5,271

6,918

-1,647 

06 

 Apr-10

Mar-11

12

6,496

7,523

-1,027 

07 

 Apr-11

Sep-11

06

3,410

4,142

-732

78

25,793

31,754

-5,960

Total 

12

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

FUEL DUES 

 HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) Limited (HPCL) stopped   the fuel supplies for about two hours to Kingfisher airlines owing to the non payment of dues. Situation was later resolved. In the past several years,  Kingfisher airlines have had trouble paying their fuel bills.



 BPCL: Bharat Petroleum Corporation in 2009 had filed a case against  Kingfisher airlines for non-payment of dues. High court in an order said that  the entire amount ( 245 crore (US$ 49.69 million) had to be paid by Nov 2010  and the airline paid it in installments

MISTAKES COMMITTED BY KINGFISHER:

 Here are some of the possible decisions and factors that led the Kingfisher  Airlines into the crisis.



 It borrowed heavily to fund loss making airline and fell into a debt trap.



 It bought new aircraft when the industry suffered from heavy capacity. capacity.



 Kingfisher was blinded by a desire to overtake Jet Airways and become the  king of skies

13



 Focusing in flamboyance, it ignored the low cost airline model.



 Price of Rupee Depreciating which has also to its crises.

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

ANALYSIS & INTERPRETATIONS:Over the past few days, a lot has been said, and even more speculated by the  media and the common man about the Kingfisher Airlines working schedule and   their losses. There was a phase when we even heard news like "Poor days for the Good Times", "Kingfisher to shut down", and even "Kingfisher asks for a bailout  plan". While the first one can be said to be correct, cor rect, the media speculating about the  future of the airlines without knowing much about its plans was nothing less than  rubbish talks. t alks. As everybody knows, kno ws, media in India is more about ab out making hype of a  thing than to present its actual reality, and this being such a big news had no  chances of being spared.

 Kingfisher Airlines, no doubt, is trouble-ridden and desperately needs some  capital to get rid of its debts. But never has Dr. Mallya asked the Indian Government for a bailout. While on the one hand, Dr. Mallya has never seen  Kingfisher Airlines gain profit from its operations, one cannot ignore the fact that  he is also the Chairman of the United Breweries Group, India's number 1 and  world's number 3 spirits company. He has enough assets held with the UB Group,  and at any point of time, he will consider going for a capital exchange with UB Group rather than asking the government for a bailout by using the taxpayers'  money. And why should he continue flights to routes that only make losses? We  don't see logic behind it, at all. In fact, cutting down the flights will only boost up  the airline's performance and will help them provide better services in future.

Coming to the demands made by him, we did not find a single point where we  could prove him wrong, or even 'greedy'. After all, being a businessman, you always  aim at making m aking profit, and there's nothing nothi ng wrong with it. When he asks for lowering  of taxes on the ATF, he is not asking ask ing that th at for f or Kingfisher Airlines only. The Indian Government has been offering infinite subsidies on items like LPG,

14

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

 Diesel and Kerosene for years now. The airline companies just want lowering of the t he  taxes, not a subsidy, and this will ultimately improve the performance of the worst  performing air carrier of the country, Air India, as well. For the last two years, the  civil aviation department have been infusing millions of Rupees in Air India to  sustain its capabilities. And we are not surprised that the media has not taken the  hype to a great level, after all the media is controlled by the Government policies.

 Let's forget about the ATF prices for sometime and talk about the Forex. Today, Rupee hit an all-time low of 52.65/1$, and the RBI has till now only hinted   for some actions. There have been earlier periods of volatility and the RBI was quick to respond all those times. A weakening rupee results in increase of costs of   the imported items, mainly fuel, and if the RBI wants to reduce red uce the inflation rate, rat e, a weakening rupee is certainly not going to help it out.

Today, even the auditors of Jet Airways have asked the company to raise  funds in order to continue its operations operatio ns in an efficient manner. Jet Airways has the  biggest market share with a quarter of passengers using the airlines. However, the  Forex has troubled the airline way too much. m uch. Air India, no matter how much debtdebt  ridden it is, will continue funding from the Central Government. But something  needs to be done desperately for saving the private airline companies. They cannot  groom until and unless they earn some profits. The state government, even if it  reduces the taxes on the ATF, can perform much better with less capital with a  better and corruption-free system. However, we know that this is not possible and   the airlines are paying for it.

15

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

 Anyways, all said and analysed, the only thing we, the common people, can  do is hope that the airlines do get some relief from the government in the form of  either tax reduction, or inclusion of Foreign Direct Investments. Air traffic in India is growing at the rate of about 20-25% per quarter, and it will only hurt the  travellers of they have to pay higher prices for a journey because of a low  competition caused by the shutting down of companies/routes due to excessive losses.

16

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

RECOMMENDATION:o

To cut down debt kingfisher should sale out its property.

o

We don’t support the bail -out -out plan from the Government for Kingfisher

 Airlines. o

 Private sector players must not be supported by the Government for their Survival. This will spoil the competition between the private sector players.  It’s a free entry and exit.

o

Vijay Mallya of kingfisher airlines must sale-off its assets to minimise its  debts.

o

The plan to raise more debt is completely a wrong idea and an unhealthy  plan.

o

 Demanding for more debts even when the airline is making no profits is a wrong judgement or view. Airlines must not play with the money of investors  otherwise more adverse effect will be marked in the future.

17

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

CONCLUSION: It has been very glad to work on this research oriented wonderful project. The co-ordinated efforts of all the members had really made the project fantastic  and well-defined.

The project is based on the Crisis of kingfisher airline and various other  aspects of it.  Eventually WE would like to give a batch of thanks to all the peoples who  have helped us in the making of this project.

18

|Page

 PROJECT ON RESEARCH RESEARCH METHODOLOGY. METHODOLOGY. CRISIS OF KINGFISHER AIRLINES.

BIBLIOGRAPHY:

http://en.wikipedia.or http://en.wikipedia.org/wiki/King g/wiki/Kingfisher_Airlines fisher_Airlines

  http://www.mone  http://www.moneycontr ycontrol.com/ne ol.com/news/curr ws/current-affai ent-affairs/kingf rs/kingfisher-bo isher-boardard-

 to-explore-ways to-explore-ways-outcrisi outcrisis_6169 s_616953.html  53.html 

  http://www.ti  http://www.timesofindia mesofindia.com .com



http://www.google.com

  Economics  Economics



Times Of India Newspaper

  Mint

19

Times Newspaper Newspaper

|Page

Newspaper Newspaper and and website. website.