Kingfisher Airlines Essay

BackgroundKingfisher airlines started out as a UB group subsidy, a USD 2 billion diversified conglomerate, which holds much than 60 companies under it which are associated with study industries. The United Breweries group owned the kingfisher airlines. Kingfisher airlines had then commenced its commercial operations in the twelvemonth 2005 on the 9th of May. Operating with a fleet of four new Airbus A320-200s, kingfisher airlines had its first travel from Mumbai to Delhi. Subsequently the airliner had unconstipated commenced its international maneuvers on the 3rd of September 2008, by interlinking Bangalore and London. However it face up a worsening economic scenario since 2008. The mighty airlines in the present day scenario is facing m whatever bankruptcy problems, pushing the airline to ground many of its destinations and aircrafts. innovationIt was the year 2006, when kingfisher airlines got listed in the stock exchange after it had been setup in the year 2003. The present day situation for KFA is that it has a staggering Rs.8200 Crore debt and the currency to commit for institute the sack, salaries and airport fees etc. is running out. Due to this KFA has lost all its hopes and has pleaded the government to give them a totalbailout but according to market analysts, the actual flaws in KFAs trade plans and the functioning are ascribable to the endless woes of it , which is the major root problem of the airline. So my research question for the current commentary would be Will kingfisher airlines be able to recover from the present debt crisis using the current financial strategies?Syllabus area coveredSWOT analysisCurrent proportion AnalysisGPM and NPM ratios Analysis of the balance sheetFindingsWhen Deccan Aviations Captain G.R Gopinath was looking forward to selling send off his airline, then is when Vijay Mallya who kept denying that he couldnt crimson think of buying an airline whose business organization prototype is so different than t hat of his had suddenly put in his bid and apparently clinched the deal. It was an fire deal because KFA had got the license to fly immediately and got immediate listing as soon as it purchased Deccan Aviation but it was not all good, along with the goodies they had even acquired the detrimentes incurred by the airline.The relay station group of the airline that is the UB Group had an experienced set of officials to run its business which majorly includes Vijay Mallya himself. The Airliners second problem was that its chairman was playing like an absentee landlord and was concentrating on his other business. The third mistake that Kingfisher Airlines had made was that they could have first consolidated its domestic operations and then got into international flying as then the competition increases a lot and only those with enormous money re beginnings survive.SWOT AnalysisStrengthsWeaknessesStrong brand imageFinancial support from the lifter that is the UB group.First Indian ca rrier that started out with a whole new fleet of planes. Quality service and innovationFinancial issues due to heavy debt getThe laying off of employees has caused a bad image.The maintenance be were very high at ground and airline level. The association still has not met its breakeven.The just the ticket pricing was very high, not in the affordable range of the commoners unlike its competitors which are priced economically.OpportunitiesThreatsPoor service of air India and problems of strikes in jet airways. Growth in air travel, the number of passengers has change magnitude. Route Rationalization cutting down business in un cabbageable sectors and services to cities.1 Debt Recast Kingfisher Airlines must ask the banks to reduce the cheer rates of the loans and possibly find a local investor to invest some money in their business2. Low cost carriers obtaining the larger market share.Fuel costs also have increased subsequently.Economic slowdownInfrastructure constraintsBanks wi ll aver on severe security before giving in any more loans which they need for their operational costs. Some banks may even go up to the extent of calling in all their debt. The airlines performer funds will be tapped, which will put pressure on the finances of the UB groupCurrent Ratio AnalysisIt can be defined as the lodges ability to meet its short term maturing obligations. The current ratio is calculated using this formula Current Assets/Current Liabilities. For the year 2012 (as of march 31st) = 16188.35/84428.04 = 0.19 (all values in million INR) For the year 2011 (as of march 31st) = 29738.26/55255.85 = 0.54 (all values in million INR) 3 http//www.marketing91.com/swot-kingfisher-airlines/4 http//m.outlookindia.com/story.aspx?sid=4&aid=279017It can be reckonn that the current ratio has decreased from the year 2011 to2012 which indicates a threat to the company as the debt to assets has significantly increased and has not yet been repaid in the right model to improve and c ome out of the debt crisis.Following is a graph that shows the plotting based on the balance sheet3. We can see that the current ratio is less than 11 for both the years which indicates that the short term debts of the business are much greater than its liquid assets, which could spell disaster for its survival if creditors demand payment. Which is the showcase for kingfisher airlines as there crisis has been increasing and increasing as there are no sources for revenue that can be used to pay out even a part of the debt. If the companys current ratio falls below 1, it implies that the company has a negative working majuscule, it is then required for the business to take a closer look at the business and there are no liquidity issues.If the ratio is drastically below 1 it implies that the company has inventories that can be converted into cash and this involves to be seriously concerned into the working which when neglected can lead to a financial crisis like in the case of Kingfi sher Airlines. When observed in the financial values the income from operations has increased drastically from march 31st 2011 to march 31st 2012 which can be accounted to the loss in operations and trade. If we observe the employee costs also have been cut down on a large note due to the laying off of the employees and staff members. The aircraft lease rental has been subsidized as the fleet of Kingfisher airlines has decreased.If we compare the quarters amidst December 31st 2011 and march 31st 2012, we can see that the aircraft fuel expenses are more or less the same, which shows a loophole as to why is there still such high fuel expenses even though the operations and fleet have been reduced or more close to being closed. The losses between the same periods have almost increased more than double the times. Hence we see the net losses of the company to increase from (44.426.95) to (115,152.60) lacs which shows the growing debt crisis of Kingfisher Airlines.Price Movement and Perf ormance Charts of Kingfisher AirlinesIndex Comparison and Ownership fig of Kingfisher AirlinesSourcehttp//www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=532747From the above graphs, it can be clearly seen of what the past, present and future trend of Kingfisher Airlines is going to look like in the respective areas mentioned above.GPM (Gross profit margin)For the year 2011-4.8%For the year 201238.2%It can be seen that the gross profit has been depreciating at an exponential rate which shows that there is absolutely no scope of business for kingfisher airlines, as its functioning and sales have gone down on a drastic rate, thus leading to its mounting losses. NPM (Net Profit Margin)For the year 201121.1%For the year 2012382.01%When we calculate the net profit for the company we can observe the change in it from the year 2011 and 2012 there is difference of about 360% which shows the enormity of the debt that kingfisher airlines is heading towards. The companys market share has also shrunk a lot due to the onboard crisis. Below is the pictorial representation of the difference in the market share of kingfisher airlines between the financial year 2011 and 2012.FOR THE YEAR 2011FOR THE YEAR 2012AnalysisIt can be seen that Kingfisher Airlines has gone for public issue before it obtained Deccan Airlines so a part of the money might have been raised from /the money gained out of it. The UB group was the promoter of the company so it had the maximum stake in the Airlines but lately due to the debt crisis its stake is being diluted in order to issue them to other public who can invest money and might raise some capital for the business, doing so it is raising financial pressure on the UB Group. The Going concern status of kingfisher airlines has already been lost which might pose a threat for investors place in the company which might lead to very bleak chances of survival.ProblemsFuel duesKingfisher Airlines had been a nonpayer of fuel bills wh ich lead to many problems for the airliner. HPCL (Hindustan Petroleum Corporation Limited) had abridged the supplies of fuel for the airliner in lieu of non-payment of overdue fuel bills. Delayed Salary Kingfisher Airlines had not paid salaries to its employees from October 2011 to January 2012, which had caused employee dissatisfaction. It had also been noted that the tax cut from the employees income at the source was also defaulted while paying to the tax department. There was a delay in the aircraft lease rentals which has to be paid to GE Commercial Aviation Services, which afterward lead to repossession of four A320 aircrafts.Airport Authority of India had slammed notices on kingfisher for a due on bills which amounted to about 255.06 crore INR. This had happened because the airliner was working on a cash and carry prat with a daily expense of 0.8 crore INR. Kingfisher Airlines had even service tax arrears which invited the possibility of legal action against the airliner. K ingfisher Airlines was declared as a Non Performing Asset (NPA) by the banks that had lent money for the airliner to carry out its business. Later, KFA suffered more problems such as erosion of net worth, frozen bank accounts, much of its fleet being grounded and light frame of ticket sales by International Air Transport Association (IATA).Kingfisher Airlines share price from Sep-2010 to Sep-2011Measures TakenRevenue InventivenessOne world coalescency membership would allow KFA to have incoming inlandpassenger growth. Co-branded Credit Cards Kingfisher Airlines had issues the King Club ICICI co-brand card as ICICI bank is one of its major lenders. Kingfisher Express DTD (Door to Door) Cargo express services to capture the under penetrated air-cargo delivery service. Cost Reduction inventivenessStreamlining distribution channels.Renegotiating vendor agreements airport and fuel discounts, operating(a) leases at a discount. Control over discretionary spend reduction in rentals, c ost of transport, local conveyance and communication. Optimize space. Operational efficiency pitch on fuel consumption.Equity infusionDebt Re-schedulementCapitalization of its expenses which would lead to the increase in the net income, reduce the stockholder equity and total assets will plenty for the same amount of expenses.Strategies for Kingfisher to come out from its Debt Crisis Rescheduling and restructuring of loans- the unsecured loans must be converted into equity share capital then Kingfisher Airlines can avoid the finance cost of the unsecured portion but the promoters (UB Group) holding will drastically decrease and even the secured loans can be paid in almost the same manner. Thus the banks will have to increase the period of regressment and decrease the rate of interest on the loans which might help KFAs operations and possibly the loans might be cleared. There must be efficient strategies to increase the turnover of the company which includes the change in pricing dodge and making it competitive to its co-airlines.Fuel subsidies from the government KFA must convince the government to give them fuel subsidies by which they can run their airlines and then slowly repay back all its debts. FDI ( Foreign Direct Investment) there is a larger chance of KFA getting merged with some international airline if the FDI limit is increased which will thus lead to the acquisition of Kingfisher Airlines by an international carrier but will be relieved of its debts and would not then effect the promoter group.ConclusionThe present condition of Kingfisher Airlines can be due to a series of reasons but ultimately it was a rise and all of a lusus naturae domestic carrier for India. There are very few chances for the company to bail out from its current situation. The hope of an international merger with Kingfisher might give a ray of hope to the survival of the airlines. If the current debt crisis is not put on hold and keeps increasing, there would be only on e door open for Kingfisher Airlines that is to sell out everything to repay all its debts to banks and lenders thus leading to the ultimate collapse of Kingfisher Airlines.