Kingfisher Financials

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INTRODUCTION

Kingfisher Airlines Limited is an airline group based in India. Its head office is in Andheri

(East), Mumbai and Registered Office in UB City,Bangalore. Kingfisher Airlines, through its

parent company United Breweries Group, has a 50% stake in low-cost carrierKingfisher Red.

The airline had been facing financial issues for many years. Until December 2011, Kingfisher

Airlines had the second largest share in India's domestic air travel market. However due to a

severe financial crisis faced by the airline at the beginning of 2012, it has the lowest market share

since April 2012.

The airline had shut down its operations when on October 20, 2012 the DGCA suspended its

flying license. This suspension had been due to failure to give an effective response to the show-cause notice issued by DGCA. However, The airline had locked out its employees for several

days before this suspension. On 25 October 2012, the employees agreed to return to work. On 7

June 2010 Kingfisher became a member elect of the Oneworld airline alliance when it signed a

formal membership agreement. Kingfisher confirmed on the 20 December 2011 that it will join

the Oneworld airline alliance on 10 February 2012. Kingfisher would have been the first Indian

carrier to join one of the big airline alliances. However on February 3, 2012, owing to bad

financial situation and two days after the International Air Transport Association (IATA)

clearing house suspended Kingfisher Airlines; the airlines participation to Oneworld has been put

on hold.

History

Kingfisher Airlines was established in 2003. It is owned by the Bengaluru based United

Breweries Group. 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. It started its international

operations on 3 September 2008 by connecting Bengaluru with London. Kingfisher's head office

is located in The Qube in Andheri (East), Mumbai and its registered office is located in UB City,

Bangalore. Its head office was previously in the Kingfisher House in Vile Parle (East), Mumbai.

In 2012 Vijay Mallya was trying to sell the Vile Parle Kingfisher House. With the freezing of the

bank accounts of the airline by the Indian Income Tax Department, the airline entered a period of
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financial unrest. Following are the year by year financial results of Kingfisher Airlines, all values

are depicted in Indian rupee (INR) crore except EPS, which is in plain INR.

In September 2011, the chairman and managing director of Kingfisher Airlines made following

disclosure to the Bombay Stock Exchange(BSE); "The Company has incurred substantial losses

and its net worth has been eroded. However, having regard to improvement in the economic

sentiment, rationalization measures adopted by the Company, fleet recovery and the

implementation of the debt recast package with the lenders and promoters including conversion

of debt into share capital, these interim financial statements have been prepared on the basis that

the Company is a going concern and that no adjustments are required to the carrying value of

assets and liabilities" This filing was widely covered by Indian and international print and

electronic media and analysts. It was stated by analysts and media that the company neededcapital infusion to remain viable and this has pushed shares to near historic lows. Kingfisher

Airlines Lenders later stated that they consider that company is viable. On 15 November 2011

the airline released poor financial results, indicating that it was "drowning in high-interest debt

and losing money". Mallya indicated that his solution was for the government to reduce fuel and

other taxes. The government was engaged in assessing whether to bail out the company and other

airlines or let market forces determine which ones survive.

Ever since the airline commenced operations in 2005, it has been reporting losses. After

acquiring Air Deccan, Kingfisher suffered a loss of over 1,000 crore (US$182 million) for three

consecutive years. By early 2012, the airline accumulated losses of over Rs. 7,000 crore

(US$ 1.27 billion) with half of its fleet grounded and several members of its staff going on strike.

Kingfisher's position in top Indian airlines on the basis of market share had slipped to last from 2

because of the crisis. In December 2011, for the second time in two months, Kingfisher's bank

accounts were frozen by the Mumbai Income Tax department for non-payment of dues.

Kingfisher Airlines owes 70 crore (US$12.74 million) to the service tax department. Indian tax

body also stated that Kingfisher Airlines is delinquent On 20 October 2012, Kingfisher's licence

was suspended by the Directorate General of Civil Aviation after it failed to address the Indian

regulator's concerns about its operations. On Feb 25, 2013, its international flying rights and

domestic slots were scrapped by the Indian aviation authorities.

Destinations
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As of 10 April 2012, Kingfisher Airlines served 25 domestic destinations within India. It had

suspended all international operations from 10 April 2012 with the final flight between London

Heathrow and Delhi. When the airline is flying, all routes are now operated with the Airbus

A320 family, ATR 42s and ATR 72 aircraft. Its first long haul destination was London, United

Kingdom which was launched in September 2008. It had plans to launch new long haul flights to

cities in Africa, Asia, Europe, North America and Oceania with deliveries of new aircraft. All

long haul routes used to be operated on the Airbus A330-200.

MISSION STATEMENT AND OBJECTIVE OF THE COMPANY

Kingfisher Airlines passion is to deliver a world-class experience to its flyers. And since work

and play can go hand-in-hand, they want to make sure that guests get some time to relax in the

skies after several pressing commitments and stressful work obligations.

Their objective is to be personally involved and ensure that every Kingfisher aircraft meets the

global standards that I have set in terms of safety. They have also introduced a brand-new fleet

which incorporates the latest technology available and in spite of the personalized entertainment

system for personal viewing and listening pleasure, they manage a unique class price between

low cost carrier and contemporary competitors class. Creating an environment that feels first

class but is in the budget.

Read more:http://www.ukessays.com/essays/marketing/marketing-and-management-strategies-

of-kingfisher-airlines-marketing-essay.php#ixzz2MRZiKMsC

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FINANCIAL PROBLEMAS

The saga of Kingfisher Airlines financial problems and its potential bailout exposes ugliest face

of Indian businesscrony capitalism, breakdown in corporate governance, poor regulation,

banking impurdence and complete lack of accountability at all levels. Ironically, it is happening

at a time whey Dr Veerappa Moily, minister for corporate affairs made an impassioned speech in

Mumbai urging corporate India to have better governance standards, talked about protecting

investors and spoke of instituting patriotism awards for Indian companies.

The Kingfisher story, clearly anticipated and documented by Veritas, a Canadian research firm,

in September 2011 has played out as anticipated by this hard hitting report . The report titled, A

Pie in the Sky wrote: UB Holdings (UB or the Company), the parent of Kingfisher Airlines

(KAIR or Kingfisher), is teetering on the verge of bankruptcy, and incidentally, so is KAIR.It also says that the true state of affairs are not reflected in the share price of the company and

warned, right then, that investors should sell the stock and salvage whatever value they can out

of it. Unfortunately, under pressure from our government, Indian bankers were in no position to

do the same. Veritas also examines the state of the parent UB Holdings, in a report whose title

says it all: Debt Recast: Deadman Walking but more about that later.

What can be a more forthright description of the state of affairs than this? Veritas writes: We

believe that KAIRs book equity has been wiped out although audited financials pretend

otherwise. The airline is burning cash at a rapid rate, we estimate Rs301.10 core ($ 65 million) in

the first quarter of 2011-12, is in a business that requires capital perpetually, has no pricing

power given six carriers fighting over the major hubs in India, is dependent on the vagaries of the

price of oil and the largesse of state-run financial institutions in India, and its parent UB has run

out of financial room to accommodate the needs of this capital-starved child.

Moreover, in spite of the so-called debt recast, we believe that once the non-cancelable operating

and financing lease commitments of KAIR are included, KAIRs enterprise value is less than its

contractually required cash obligations, implying negative residual equity value for KAIR, as

illustrated in Figure 1. (All USD amounts @1USD = Rs46.45, 9th September 2011).

Despite this situation, in the past five months, banks have done nothing to prevent Vijay Mallya

continuing to burn cash as this rate, even to protect their own and ultimately taxpayers money.

So bad are Kingfisher Airlines finances that they will drag down its parent United Breweries,

too. But that is if Dr Mallya is ever made to pay and if banks are not forced to swallow his


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losses. Veritas says: UB, which has marketable assets of Rs4713.40 crore ($ 1,037 million),

compared to guarantees provided on behalf of KAIR of Rs16,853 crore ($ 3,638 million), is also

staring into a black hole. We believe that the ill-conceived foray into the airline business has

already cost UB shareholders dearly, and that their ownership of Indias premier liquor and beer

assets has been sacrificed at the altar of egoistic ambitions.

More importantly, we believe that unless the banking institutions have provisioned judiciously

for the debt provided to KAIRapproximately Rs4567 crore ($ 986 million) in loans to

Kingfisher in addition to standby letters of credit, etcit renders the disclosed capital position of

the banks unreliable.

At this stage, a comparison with how the government has behaved with the national carrier Air

India is inevitable. Veritas calls calls the civil aviation ministry involving Air Indiathe state

owned carrierto pull its act together duplicitous. It adds: Our view stems from the fact that it

could be on the diktat of the regulatory authorities involving various ministries of the

Government of India that an unviable airline, KAIR, which is competing against the incumbent

state carrier and siphoning away its passengers on both the domestic and international routes, is

being supported via taxpayer-funded financial institutions.

It is not only the financial institutions that are suffering. As per the fiscal 2010-11 auditors

report, KAIR was also in default of the dues owed on behalf of its employees to regulatory

authorities, which it doesnt count as debt. As per the auditors of Kingfisher, Undisputed

amounts payable in respect of employees state insurance of Rs0.75 lakh ($ 1,619), provident

fund of Rs43.80 lakh ($ 94,564), tax deducted at source of Rs422.98 crore($ 93 million), service

tax of Rs10.48 crore ($ 2.3 million), professional tax of Rs2.46 lakh ($ 5,412) (In all cases

relating to the years 2008-09, 2009- 2010 and 2010 - 2011) and fringe benefit tax of Rs 4.51

crore ($ 1 million) (balance of tax and interest for the financial year 2008-09). The due dates for

these amounts are as per respective statutes.

Clearly, KAIR is funding itself at the expense of its employees and the Indian exchequer, to

which it owed tax deducted at source on behalf of its employees of Rs42.29 crore ($ 93 million)

as per the 2010-11 auditors report.

If all these facts were available to a Candian company, why was the civil aviation ministry and

the tax authorities so soft on Kingfisher? Here is how blunt Veritas is about the UB group: We

also believe that the current management of UB has lost all legitimacy to run the vast liquor and

beer business, and that the financial institutions should auction the collateral to the highest bidder


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and recoup whatever is left for their respective shareholders.

Now here is what Veritas says about Deadman Walking the dubious debt recast that is being

fed to us, a gullible public. It says, In our view, the debt restructuring touted by KAIR is

nothing to write home about. We believe that non-performing loans have been

rechristened/repackaged into subordinated debt, and that Kingfisher has defaulted on its

obligations is unquestionable. We do not believe that KAIRs antics would have found any

takers in a responsible credit market and that the airline would have been liquidated by now.

During 2009-10, Kingfisher defaulted in principal repayment of Rs203.10 crore ($ 45 million)

and overdue interest of Rs 81.6 crore ($ 18 million), for a total default of Rs284.7 crore ($ 63

million). Between July 2010 and March 2011, KAIR defaulted on interest payments of Rs349.80

crore ($ 77 million). Foregone principal repayments are undisclosed. Therefore, from the

beginning of FY09-10 to the end of FY10-11, the airline defaulted on dues of at least Rs634.50

crore ($ 140 crore) to the financial institutions. (Data for the period April-June 2010 is

unavailable.)

Clearly, the loans given by the banks to KAIR are impaired and therefore under the pretext of a

debt recast, the banks have converted some of these unpaid principal and interest amounts into

cumulative convertible preferred shares {Rs755 crore ($ 166 million) of term loans converted

into CCPS of 7.5%} and cumulatively redeemable preferred shares {Rs553 crore ($ 122 million)

of term loans converted into CRPS of 8% with a maturity of 12 years}.

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FINANCIAL ISSUES

The challenges continue in Indias aviation sector with the countrys three-listed carriers

Kingfisher Airlines, Jet Airways and SpiceJetposting losses in the three months ended 31-Dec-

2011 (3QFY2012), traditionally the strongest quarter for Indian carriers, marking four

consecutive quarters in the red. KingfisherAirlines, as expected, posted the heaviest loss among

the listed carriers in what was a tough quarter forIndias aviation sector as a whole.

Government-owned Air India is also heavily loss-making. SpiceJet, while also feeling the pain,

is better placed than some of its rivals, while unlisted IndiGo is likely to be the sole profitable

carrier in the current fiscal year.

Jet Airways, SpiceJet and Kingfisher net profit (loss) margin: 1QFY2010 to 3QFY2012

Source: CAPACentre for Aviation & company reports

The losses in the quarter reflect not only issues at the individual carriers but some fundamentaland structural challenges in the Indian aviation sector. As previously noted, growth in the robust

domestic market has failed to translate into profits for India's airline industry, where all the major

carriers except IndiGo are loss-making, as a result of the impact of high jet fuel costs (during the

quarter crude oil price remained well above the USD100 mark to constitute around 40-50% of

airline operating costs), compounded by heavy taxation, inefficient infrastructure and an inability

to raise fares in a highly competitive market. In addition, rising debt levels and a depreciating
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rupee (leading to increased payments for fuel and aircraft rentals) are placing further pressure on

margins. As a result, the nations airlines are seeing a sharp increase in their cost base at a time

when yield and unit revenue growth is pressured.

Carriers in the market are attempting to rectify this situation through a number of measures such

as entering into sale and leaseback agreements to reduce debt and interest costs, restructuring

their operations and divesting non-core assets.

The road to recovery for the nations airlines will likely be bumpy, with the heavily indebted

sector having already accumulated losses of USD6 billion in the last five years, which will be

compounded by a record USD2.5 billion loss in the 12 months to 31-Mar-2012. Lender banks

are now increasingly concerned about their exposure to the troubled sector at a time when

financing requirements are significant and the net worth of the nations airlines have declined

substantially, as noted by the carriers' auditors.

Auditor commentary for SpiceJet, Kingfisher Airlines and Jet Airways

Carrier Auditors report

Kingfisher

Airlines

Kingfisher Airlines' auditors have raised concern over its ability to remain a "going

concern", stating it would need to inject more funds to remain in such a position. "The

financial statements being prepared on a going concern basis, notwithstanding the fact

that the company's net worth is eroded. The appropriateness of the said basis is inter-

alia dependent on the company's ability to infuse the requisite funds for meeting its

obligations," BK Ramadhayani & Co said in its report. Kingfisher Airlines chairman

and MD Vijay Mallya, upon the release of the carrier's unaudited financial results for

the nine months ended 31-Dec-2011, conceded that the company has "incurred

substantial losses and its net worth has been eroded". He continued: "However, having

regard to capital raising plans, group support, the request made by the Company to its

bankers for further credit facilities, planned reconfiguration of aircrafts and other

factors, these interim financial statements have been prepared on the basis that the

Company is a going concern and that no adjustments are required to the carrying value

of assets and liabilities."


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COMBINED LOSSES OF USD2.5 BILLION IN FY2012 FORECAST

CAPA estimates Indian carriers combined will lose USD2.5 billion in the 12 months ending 31-

Mar-2012. This is on total revenues of just under USD10 billion a worse result than even

FY2008/09, when traffic was declining and fuel prices spiked at USD150/barrel. In the domestic

market, Indias airlines lose USD25-30 every time a passenger boards an aircraft. All three listed

carriers have been weak performers on the stock exchange in 2011, losing considerable value

amid concern from investors about the financial state of the industry.

Shares comparison (indexed) for SpiceJet, Kingfisher Airlines and Jet Airways: Mar-2011 to

Feb-2012

Source: CAPACentre for Aviation & Rediff

The Indian Government is, however, responding to these very real challenges, with plans in the

works to open up foreign direct investment (FDI) in domestic carriers by international airlines to

bring in much-needed capital and management expertise. The Government has also stated it will

permit domestic airlines to directly import jet fuel (a positive sentiment but the practicality of

this questionable) and open up more bilaterals to private Indian carriers to operate international

routes. Pressure is also mounting on the Government to lower taxation on jet fuel, third party

maintenance and aircraft lease payments, with certain changes to the Income Tax Act and the

duty structure also being recommended.


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Looking forward, greater pricing discipline and a focus on cost-containment efforts are

necessary, while simultaneously focussing on ancillary revenue development. Capacity

rationalisation is expected to continue in the domestic market, led by Kingfisher, with downward

yield pressures in the domestic market easing since Nov-2011 for all carriers.

KINGFISHER AIRLINES REPORTS HEAVIEST LOSSES AMONG

LISTED INDIAN CARRIERS

While the financial results for all three listed Indian carriers were less than ideal, Kingfishers

profitability situation is the most concerning. While the carrier reported an EBTIDAR profit of

INR1.25 billion (USD25 million) in the quarter (EBITDAR margin declined from 17.5% to

8.1%), it was loss-making at the EBITDA level (INR1.47 billion/USD30 million) with itsEBITDA margin declining from 2.5% to -9.5% in the quarter. The carrier also reported a loss

before exceptional items and tax of INR5.78 billion (USD117 million) and a net loss of INR4.44

billion (USD90.2 million) for a net loss margin of 33%.

Kingfisher has been consistently loss-making due to an ill-timed expansion that included

ordering A380s (subsequently deferred) and a merger with Air Deccan. The global economic

crisis and rising fuel prices contributed to the carrier's problems and has left it heavily indebted

to lessors, suppliers, lenders, airline partners, employees and the tax department. This financial

situation is now impacting its operations, with the carrier this month grounding aircraft, cutting

services and withholding salaries as India's tax authorities recently froze the airline's bank

accounts for the second time. The carrier, which is seeking additional loans from banks to fund

its continued operations, is now operating less than half its fleet (although it will add aircraft

progressively at the beginning of Mar-2012) and a significantly curtailed schedule.

Kingfisher Airlines, which has featured heavily in local and international media in the first two

months of the year, faces a pivotal year in 2012. Accumulated losses have left the company

heavily indebted and requiring urgent recapitalisation to support its ongoing operations. The

financially stressed carrier has limited funding options available given recent performance and

market sentiment, unless the promoter first infuses additional equity.


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REVENUE DECLINES FOR KINGFISHER BUT DOUBLE-DIGIT

REVENUE GROWTH FOR JET AIRWAYS AND SPICEJET

Kingfisher Airlines reported a 5% decline in revenue in the quarter to USD314 million,

reflecting the carrier curtailing operations during the Dec-2011 quarter. Revenue moved in the

other direction for Jet Airways and SpiceJet, with revenue growth of 14% to INR39,869 million

(USD794 million) for Jet Airways and 42% to INR11,758 million (USD240 million) for

SpiceJet. Jet Airways, which expects revenue to remain flat in FY2013, benefited from revenue

gains from a real-estate agreement and foreign exchange gains in 3QFY2012. "Going forward,

there are more gains to be had on foreign exchange," the carrier said.

Jet Airways reported unit revenue growth of 3.8% to INR4.06 (USD8.09 cents) while KingfisherAirlines reported unit revenue of INR4.03 (USD8.18 cents), a 0.1% year-on-year reduction.

Kingfisher revenue per ASK vs cost per ASK: 1QFY2012 to 3QFY2012

Source: CAPACentre for Aviation & airline reports

FUEL WEIGHS HEAVILY ON OPERATING COST BASE


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SpiceJet reported the largest year-on-year increase in total operating costs, by 67% to INR11,949

million (USD244 million). Jet Airways also reported double-digit operating costs increases, of

34% to INR44,527 million (USD887 million).

While Kingfisher Airlines reported a lower increase in operating costs, of 7% to INR16,940

million (USD344 million), its unit costs remained high at INR4.42/USD8.97 (+12%), and its

staff and fuel costs remained higher than its peers as a proportion of revenue. By comparison, Jet

Airways cost per ASK increased 25.3% INR3.63/USD7.23 cents, with the carrier noting that

while everyone is selling below cost, high fuel and wage costs are driving up the cost of

operations.

The cost of fuel was an issue for all carriers in the quarter. SpiceJet noted aircraft fuel expenses

increased 90% year-on-year and fuel costs "constituted 50% of the total revenue" in the quarter,

compared to 37% in the Dec-2010 quarter. The carrier stated the increased cost of crude oil plus

24% tax on ATF is "continuing to impact" the sector "very adversely". Fuel costs as a percentage

of sales, however, declined for SpiceJet, from 63% in the Sep-2011 quarter to 51.4% in the Dec-

2011 quarter. Jet Airways also pared this ratio slightly, from 47.7% to 47.4%. It was the opposite

for Kingfisher, whose fuel cost grew from 53.5% of sales in the Sep-2011 quarter to 55% in the

Dec-2011 quarter.

Meanwhile, Kingfisher's employee expenses as a percentage of sales increased from around 12%

in Sep-2011 quarter to more than 13% in Dec-2012 quarter. On the other hand, Jet Airways and

SpiceJet saw the ratio of employee expenses to sales reduce, from 13% to 11.4% for Jet Airways

and from 11.4% to 9.7% for SpiceJet.

Kingfisher Airlines revenue down 5% financial highlights for three months ended 31-Dec-

2011:

Revenue: USD313.9 million, -5% year-on-year; Total operating costs: USD343.7 million, +7%;

o Fuel: USD149.9 million, +37%; EBITDA (loss): (USD29.8 million), compared to a profit of USD8.1 million in p-c-p; Profit (loss) after tax: (USD90.1 million), compared to a loss of USD51.5 million in p-c-

p;


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Passenger numbers: 2.6 million, -15%; Passenger load factor: 75.2%, -8.4 ppts; Total revenue per ASK: USD 8.18 cents, -0.1%; Cost per ASK: USD 8.97 cents, +12%; Cost per ASK excl fuel: USD 5.05 cents, -4%; Fleet: 64 aircraft, compared to a fleet of 66 aircraft in p-c-p.

*Based on the conversion rate at USD1 = INR49.2888

JET AIRWAYS MAINTAINS MARKET SHARE DOMINANCE WITH

KINGFISHER RELEGATED TO FIFTH IN 3QFY2012

During 3Q2012, Indian domestic demand increased by 12% year-on-year, although capacity

additions outstripped demand with a 17% capacity increase. Consequently load factors declined

from 77% to 74%. Jet Airways, last month, stated it expects the Indian domestic market will

continue to grow at a rate of 12-15% in the short to medium term.

India domestic industry capacity and passenger numbers: Dec-2010 to Dec-2011

Source: Jet Airways


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During 3Q2012, Jet Airways maintained its market share dominance, with a combined market

share of 26.5% for Jet Airways and JetLite, ahead of IndiGo (20.0%) and Air India (17.2%).

Kingfisher Airlines saw its market share decline substantially, relegated to fifth place in the

domestic market. Kingfisher Airlines was until the end of Sep-2011 the largest single carrier in

the domestic market.

India domestic market share by carrier: Mar-2012

Source: CAPACentre for Aviation & Indian DGCA

Source: Jet Airways

The market share decline at Kingfisher Airlines, and the 15% year-on-year reduction in

passenger numbers in the quarter to 2.6 million, occurred after the cash-strapped carrier

grounded aircraft and cut routes, resulting in significant capacity reductions in the month. Up

until recently, IndiGo and Kingfisher had been almost neck-to-neck in the market share race,

although Kingfishers market share has seen a slump from a high of 20% in Apr-2012 to around

12% in Dec-2012, while IndiGo has continued to add capacity and is operating with industry-


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leading load factors. With continued service cancellations, Kingfisher will likely see further

market share losses in the coming months.

JET AIRWAYS LARGEST BENEFICIARY OF KINGFISHER

DEVELOPMENTS

Jet Airways, which reported a 15% increase in revenue passengers in 3QFY2012 to 4.5 million,

is the largest beneficiary of the developments at Kingfisher Airlines, as it has also been able to

increase its corporate travel market share, with yields understood to have benefited from the

capacity cutbacks by Kingfisher Airlines seen across the board.

Kingfisher passenger numbers and passenger load factor: 1QFY2010 to 3QFY2012

Source: CAPACentre for Aviation & airline reports

Looking forward, the carrier expects to see continued yield improvements in the market, with the

carrier noting: The capacity induction in the market has slowed down thereby giving

considerable scope for airlines to push for higher yields and we saw some semblance of this from

November 2011". The carried added: "Passenger bookings in the fourth quarter show

encouraging trends, however, it will reflect some seasonality." Jet Airways, which continues to

report a sizeable gap between load factors and breakeven load factors, also stated it is


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"continuing to see a steady increase in our corporate and business class bookings over the last

few weeks, given what has been happening in the industry and with competition."

OUTLOOK: CHALLENGES AND CHANGES AHEAD AS INDIAN

AVIATION SECTOR SEES RED

Indias domestic aviation sector is a tough place to be in at present. All three listed carriers have

been weak performers, both financially and on the stock exchange in 2011, as a steep increase in

their cost base and lack of pricing power has translated into increasing losses and financial

pressures in the quarter ended Dec-2011.

Meanwhile, while the domestic market continues to see an increase in passenger volumes,

pricing continues to be weak despite recent improvements in light of cutbacks at Kingfisher

Airlines. However, with capacity growth slowing in 2012/13, yield improvement will likely

follow. However, there are some positives, with the outlook for the industry considerably better


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now, as noted by SpiceJet CEO Mr Mills, in light of some demonstration by the Government of

an intent to address structural distortions to assist the sector.

FINANCIAL PLANS

KINGFISHER AIRLINES SUBMITS REVIVAL PLAN, DGCA SEEKS

CLARITY

Kingfisher Airlines has gone through the motions of presenting a revival plan to aviation

regulator DGCA today but the regulator appears far from satisfied.

Official sources said more details are needed on financial aspects of the plan and also there will

be detailed consultations with all stakeholders such as airport operators etc. before a nod is given

to the airline to resume operations.

But as of today, there seems little clarity on whether Kingfishers talks with Abu Dhabi based

Etihad Airways or any other strategic investor have been successful. So a limited operation is all

the airline may achieve in the short run, provided it can satisfy additional queries the DGCA will

shortly pose.

Here are five important things related to the airlines revival:

1) Promoters will infuse Rs 652 crore into the airline but over the next 12 months. Of this Rs 120

crore has been earmarked for employee dues. The airline has said lender banks are unwilling to

extend any more loans so all this money will come from the parent, UB group. Apart from

salaries, a major portion of this Rs 652 crore will be used for refurbishing aircraft.

2) Kingfisher has denied having any dues with oil companies except some interest dues withHPCL. It has also clarified that payments of any dues will be outside the Rs 652 crore earmarked

for operational revival.

3) The DGCA is not sure if Rs 652 crore infusion is enough to get the airline up and running.

Source said prima facie, the plan does not look satisfactory. How will the plan become workable

is what DGCA wants to know. Needs more clarity on financial matters. The Centre for Asia
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Pacific Aviation (Capa) has advised infusion of Rs 3,000 crore into the airline for it to be able to

pay off vendors, ensure adequate spares and begin flights.

4) To begin with, the airline will put five Airbus 320 and two ATR aircraft to use. In a meeting

with lending banks a few days ago, Kingfisher Airline officials had said they would be able to

ramp up operations to 21 aircraft within a couple of months of getting DGCA permission to fly.

Todays plan speaks of getting 10 A 320 and 11 ATRs up and running within 10 weeks.

5) The DGCA says once it completes consultation with stakeholders and with the airline,

Kingfisher will require six to eight weeks to begin operations. The revival plan also speaks of

paying employees two months salary (salary and arrears) each month once operations actually

start.

Chairman Vijay Mallya is believed to have held extensive discussions with Etihad for offloading

minority equity stake in Kingfisher to the Abu Dhabi carrier, while also relinquishing

management control. But sources tell us that Etihad has made it clear it will not shoulder

Kingfishers debt and other liabilities.

Debt alone stands at over Rs 7,000 crore.

Airline employees say that though submission of the revival plan is good news, it may be end

January before the airline actually begins to flyif DGCA allows it toand another four weeks

before any kind of operational schedule is arrived at.

Passengers need to be sure that they can trust the airline to maintain its schedule. This building

of trust will need time. Also, the airline needs to ensure it takes employees along if it actually

wants to get back to the skies, says an employee.

Trust deficit is something Kingfisher will need to work hard on. It has been grounded since 1

October, when engineers refused to certify aircraft and all flights were suspended.

http://www.firstpost.com/business/kingfisher-airlines-submits-revival-plan-dgca-seeks-clarity-

568086.html

INVESTMENT PLAN
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Government is not satisfied with Kingfisher Airlines' plans to invest Rs 650 crore to resume its

operations as it may not guarantee an efficient and reliable service, a senior DGCA official said

today.

"We want an airline to operate in consistent, efficient and reliable manner. The revival plan,

which was submitted by the airline, had lots of issues regarding lenders, staff payment which we

felt may not lead to reliable services," the official said.

Kingfisher Airlines' plans to invest Rs 650 crore as part of its plan to return to the skies. The

airlines had lost its operating licence on December 31, 2012 and had stopped flying since

October.

The official, not wishing to be named, said the revival plan filed by Kingfisher Chairman Vijay

Mallya last month with the country's aviation regulator Directorate General of Civil Aviation

(DGCA) may not be sufficient to carry out a reliable service.

"The plan had no provision for payment of airport operators, who want their dues to be paid

before the airlines starts flying again," the official said.

The official said the payment plan of due salary and wages of staff was in a phased manner,

which "we felt may not lead to reliable services.

"If the employees were not paid, then the staff may stop working again which may cause

inconvenience to passengers. There should be no inconvenience to passengers," the official said.

Yesterday, Mallya had written a letter to Kingfisher employees, who have not been paid for eight

months now, after they threatened to file a winding up petition in the court under the Company's

Act if the management did not share its revival plan with them.

In his letter, Mallya said, "We have submitted a detailed restart plan to the DGCA which is in

two parts. The first part deals with a limited re-start utilising 7 aircraft ramping up to 21 aircraft

in 4 months. The second part is a full scale rehabilitation of our airline growing to 57 aircraft

within 12 months of recapitalisation".


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The letter, however, did not mention anything about the payment schedule of dues of the

employees, but it said that "both plans contain detailed information on key assumptions and

funding requirements, including payment of outstanding salaries to employees."

The airline has not paid to its employees since May last year.

The official also said that four of Kingfisher's leased Airbus 320 aircraft had been deregistered

by the DGCA on the request of lessor two years back.

Once India's second-largest airline, Kingfisher is burdened with a loss of Rs 8,000 crore and a

debt burden of another over Rs 7,524 crore, a large part of that has not been serviced since

January.

Kingfisher Airlines' revival plan not enough to restart ops: source

(Reuters): Kingisher Airlines' planned investment of 6.5 billion rupees ($119 million) is not

enough to restart operations at the grounded Indian carrier, according to a senior government.

The revival plan, which Kingfisher Chairman Vijay Mallya filed last month with India's

Directorate General of Civil Aviation (DGCA), does not include details on payment of dues to

airports and may not guarantee a reliable service, said the source, declining to be named.

DGCA suspended the airline's licence to fly in October after months of cancelled flights and staff

walkouts.

Kingfisher, once India's second-largest airline, is estimated to owe $2.5 billion in debt to banks,

staff, vendors and others. The airline, which has not flown since October, has tried

unsuccessfully for over a year to bring in new investors.

http://www.financialexpress.com/news/govt-not-satisfied-with-kingfishers-investment-

plan/1057946/0#sthash.fBVbS2dZ.dpuf

GOVT WILLING TO SUPPORT KINGFISHER AIRLINES REVIVAL PLAN IF

EMPLOYEES' DUES CLEARED
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India is willing to support the revival plan of grounded Kingfisher Airlines Ltd if the company

were to settle its employees' dues, a senior government source told reporters on Tuesday.

The statement came after Kingfisher Chief Executive Sanjay Aggarwal met officials at the

ministry of civil aviation to discuss the revival plan, which was earlier rejected by the regulator.

Kingfisher, which lost its operating licence at the end of 2012 and has not flown since the start of

October, is estimated to owe $2.5 billion in debt to banks, staff, vendors and others and is

scrabbling to find new investors.

http://www.financialexpress.com/news/govt-willing-to-support-kingfisher-airlines-revival-plan-

if-employees-dues-cleared-source/1063072#sthash.AXsiLy2A.dpuf

LENDERS TO START RECOVERY OF KINGFISHER AIRLINES LOANSLenders to groundedKingfisher Airlines(KING.NS) have decided to take initial steps towards recovering

$1.4 billion of loans in default after the company failed to come up with a viable funding plan.

Kingfisher Airlines, owned by the flamboyantVijay Mallya, has not flown since October 2012

after operations were halted due to a cash crunch. Its lenders had first declared the companys

loans in default in early 2012 but held back recovery after the carriers promises of capital

infusion.

Kingfisher said in December it was in talks with several investors, including gulf carrier Etihad

for stake sale but those hopes have faded as the airline continues to be grounded and expands its

losses.

Debt-ridden and with no customers, Kingfisher posted a 7.55 billion rupees loss in the three

months to December 31 as its planes sat idle, and regulators rebuffed its revival plans.

A decision on further action will now be taken by the boards of the 17 creditor banks, after

which the consortium will take decisions on valuing the assets and potentially pursuing legal

options, Acharya said, adding it is a lengthy process.
http://www.financialexpress.com/news/govt-willing-to-support-kingfisher-airlines-revival-plan-if-employees-dues-cleared-source/1063072#sthash.AXsiLy2A.dpufhttp://www.financialexpress.com/news/govt-willing-to-support-kingfisher-airlines-revival-plan-if-employees-dues-cleared-source/1063072#sthash.AXsiLy2A.dpufhttp://www.firstpost.com/topic/organization/kingfisher-airlines-profile-8864.htmlhttp://www.firstpost.com/topic/organization/kingfisher-airlines-profile-8864.htmlhttp://www.firstpost.com/topic/organization/kingfisher-airlines-profile-8864.htmlhttp://www.firstpost.com/topic/organization/kingfisher-airlines-profile-8864.htmlhttp://www.firstpost.com/topic/organization/kingfisher-airlines-profile-8864.htmlhttp://www.firstpost.com/topic/person/vijay-mallya-profile-24862.htmlhttp://www.firstpost.com/topic/person/vijay-mallya-profile-24862.htmlhttp://www.firstpost.com/topic/person/vijay-mallya-profile-24862.htmlhttp://www.firstpost.com/topic/person/vijay-mallya-profile-24862.htmlhttp://www.firstpost.com/topic/organization/kingfisher-airlines-profile-8864.htmlhttp://www.firstpost.com/topic/organization/kingfisher-airlines-profile-8864.htmlhttp://www.financialexpress.com/news/govt-willing-to-support-kingfisher-airlines-revival-plan-if-employees-dues-cleared-source/1063072#sthash.AXsiLy2A.dpufhttp://www.financialexpress.com/news/govt-willing-to-support-kingfisher-airlines-revival-plan-if-employees-dues-cleared-source/1063072#sthash.AXsiLy2A.dpuf


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http://www.firstpost.com/fwire/lenders-to-start-recovery-of-kingfisher-airlines-loans-

623161.html


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FINANCIAL POLICIES

Mallyaknown as much for his love of the good life and the popularKingfishercalendar as for

Kingfisher beer, Indias largest selling brew, and the grounded Kingfisher Airlines Ltdwas

accompanied by Sanjay Aggarwal, chief executive of the airline; Ravi Nedungadi, president and

chief financial officer of the group; and A. Harish Bhat, deputy president, corporate finance.

The always-articulate Mallya made a PowerPoint presentation in which he meticulously charted

the future of the airline, the licence of which was suspended in October by the Directorate

General of Civil Aviation (DGCA), Indias aviation regulator, following a strike by the airlines

employees. The airlines operating licence has since expired.

According to the proposal presented by Mallyabased on a revival plan submitted by the airline

to DGCAKingfisher would restart operations with seven aircraft and increase it to 21 in fourmonths. At its peak, Kingfisher Airlines was flying 66 planes to 68 locations, including eight

international destinations, with 374 flights a day, and accounted for 20% of the market.

Mallyas audiencerepresentatives of a consortium of 14 banks that have a Rs.7,000 crore

exposure to the troubled airlinegave him a patient hearing. At the end of it, one of them asked

Mallya a question: whats in it for the lenders? Mallya didnt have an answer.

Still, the meeting wasnt entirely unproductive. It ended with the formation of a core group to

assess the airlines proposal to restart operations and identify ways for lenders to recover their

money. The members of the core group are State Bank of India (SBI), Punjab National Bank

(PNB), Bank of Baroda, Bank of India, IDBI Bank Ltd and United Bank of India.

The group met in Bangalore on 4 January but made no headway. With Diageo Plc of the UK

buying a 27.4% stake in UB Group company United Spirits Ltd for 660 million (this will be

followed by an open offer to buy another 26% from the public shareholders of United Spirits),

the bankers went into that meeting hoping Mallya would come up with a concrete plan to take

care of their interests.

Their belief was strengthened by an offering Mallya made on 18 December, his birthday, at

Hindu god Venkateswaras shrine in Tirupati in Andhra Pradesh3kg of gold worth close to

Rs.1 crore. But Mallya did not oblige.

LENDERS LARGESSE
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The core group will meet again in Mumbai on 18 January, possibly to take a final call on the

money owed by Kingfisher Airlinesarguably the most high-profile bad asset Indian banks have

ever had on their books.

The banks cant be blamed; if anything, they have been far too patient and much too generous.

They first restructured Kingfishers debt in November 2010. To infuse life into the airline, ailing

even then, banks in the consortium converted Rs.1,355 crore of debt into equity, at a 61.6%

premium to the market price of Kingfisher Airlines stock. Following this, banks own 23.21% of

the airlines equity. The promoter, too, converted Rs.648 crore of debt into equity. Apart from

this, the bankers also stretched the period of repayment of loans to nine years with a two-year

moratorium, cut the interest rates, and sanctioned a fresh loan.

The idea was to bring down the debt of the airline, push up its equity-debt ratio, and improve its

cash flow. Since its inception in 2005, Kingfisher has never returned a net profit. And its losses

zoomed after it acquired low-cost airline Deccan Aviation Ltd in 2007. Between fiscal 2008-09

and September 2012, its accumulated losses reached Rs.8,015.8 crore.

The bankers agreed to throw good money after bad money in the belief that this would improve

the health of the airline and ultimately help them recover their dues. Now, they regret it.

Interestingly, some of them admit there were more than just commercial interests at play in their

generosity. In private, some bankers hint at pressure from certain quarters to restructure the loan.

Mallya has been a member of the Rajya Sabha, the Upper House of Indias Parliament, since

2002.

Still, whatever forces may have been at work, the bankers insisted on a safety net.

Since most airlines lease aircraft, banks do not get planes as primary security for loans given to

airlines. So what do the bankers have as collateral? They took fresh collateral from Mallya

during the restructuringtwo properties in Mumbai and Goa worth Rs.70 crore, two helicopters

worth Rs.84 crore, and shares of United Spirits and Mangalore Chemicals and Fertilizers Ltd

worth Rs.450 crore at current market prices. They also took the first charge on fixed assets such

as coaches that ferry passengers to the tarmac and tractors, worth Rs.150 crore. In case of a

default, lenders with a first charge have the option to seize the assets.

The banks also received a corporate guarantee from United Breweries Holdings Ltd, the holding

company of the group, and a personal guarantee from Mallya. Finally, they also took as collateral

the Kingfisher brand, valued at Rs.3,000 crore by audit firm Grant Thornton India.
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PERSONAL GUARANTEE

In an indication of the kind of sway he once exerted over the bankers, Mallya charged the banks

Rs.98 crore for offering a personal guarantee. Once the banking regulator Reserve Bank of India

(RBI) got to know of this, it asked the banks to recover the money. The amount was initially

debited from Kingfisher Airlines liability to banks in its 2010-11 profit and loss account, but the

next year the entry was reversed, thus doing away with the fee. Now, the banks seem determined

to take their dealings with the airline to their logical endone that could well mean the end of

the airline, too.

Mallya is willing to bring in money to make the airline operational and have a limited restart in

the summer of 2013. In a 10 January letter to employees, he promised to infuse Rs.650 crore to

do this. The money will come from the UB Group and its associates. Among Kingfishers dues

are unpaid salaries, and payments to oil marketing companies and private and public airport

operators, and the Rs.650 crore will be used to meet these obligations, at least partially.

The banks are unlikely to allow this to happen. They want around Rs.800 crore on the table for

themselveshalf of which is technically called an irregular amount, or the dues not paid. This

means Mallya would need to bring in at least Rs.1,450 crore to restart operations (that is if

Rs.650 crore is enough to take care of other obligations at this point).

If indeed he does that, technically the banks will have scope to restructure the account once

againthis is within the realm of the possiblethrough the so-called corporate debtrestructuring (CDR) route. If Mallya does not bring in the money for the lenders, he wont be

able to restart the airline because the aviation regulator, DGCA, will seek a no-objection note

from banks and that might not be forthcoming.

The banks can afford to be aggressive as they have nothing to lose. Technically, the Kingfisher

debt account turned bad in 2009 even before the first restructuring happened. This is because

when a restructured loan turns bad, RBI norms mandate that the lenders backdate it to the time

before the restructuring exercise was taken up. Most banks have already set aside money to cover

the bad loan, and every rupee recovered from Kingfisher will add to their profits.

SBI, the leader of the consortium, has the maximum exposure at Rs.1,600 crore, followed by

PNB (Rs.800 crore), IDBI Bank (Rs.800 crore), Bank of India (Rs.650 crore), Bank of Baroda

(Rs.550 crore), United Bank of India (Rs.430 crore), Central Bank of India (Rs.410 crore), Uco

Bank(Rs.320 crore), Corporation Bank(Rs.310 crore), State Bank of Mysore, an SBI associate

bank (Rs.150 crore), Indian Overseas Bank (Rs.140 crore), Federal Bank Ltd (Rs.90 crore),
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Punjab and Sind Bank(Rs.60 crore) and Axis BankLtd (Rs.50 crore). Overall, their exposure is

Rs.6,360 crore, and once the unapplied interest is added, it becomes Rs.7,000 crore.

There are other lenders outside the consortium. They are Srei Infrastructure Finance Ltd (Rs.430

crore), Jammu and Kashmir Bank Ltd (Rs.80 crore) and Oriental Bank of Commerce (Rs.50

crore).

A debt fund operated by Kolkata-based Srei Infrastructure Finance bought ICICI Bank Ltds

exposure to the airline in July 2012. The non-banking financial company and Jammu and

Kashmir Bank has shares of United Spirits and McDowell Holdings Ltd as collateral. The

current market value of these shares is about Rs.350 croremore than their exposure. The

consortium has an arrangement with these two entities to get hold of the additional shares and

sell them to recover their dues.

RECALLING THE LOAN

At least one lender claims to have sent a recall notice to the company some time back, but claims

it could not follow up because of pressure from a certain quarter. A senior executive of the bank

said he received a call from a bureaucrat from Delhi asking him to follow the leader of the

consortium and not to do anything outside that.

But things have changed in the Capital as well, and it now looks like there will not be any

pressure from any quarter and banks can chart out their course.What can they do?

They can move for liquidation of Kingfisher. And for this, they do not need to take legal

recourse. Under the Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, secured creditors can move a debt recovery tribunal to recover their

money.

A sale of the Mumbai and Goa properties, two helicopters, other fixed assets and shares of UB

Group companies can generate around Rs.1,000 crore, roughly 15% of the money that Mallya

owes banks.

By virtue of holding the Kingfisher brand as collateral, the banks can prevent United Breweries

from using it for its beer, which is sold in 52 markets and accounts for more than one-third of the

Indian beer market. And if indeed the banks become aggressiveas they are planning to be

Mallya will have to stop printing the Kingfisher calendar, too, a prestigious project since 2003 in
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which ace photographer Atul Kasbekar shoots models and film actors on the beaches of

Mauritius, the Maldives and the French Riviera.

The corporate guarantee of United Breweries Holdings will also come in handy.

Finally, the banks can play havoc with Mallyas personal guarantee by seizing all his assets. If

Mallya transfers his personal assets to others in his family for fear of losing them to the banks,

the banks can move criminal proceedings against him.

As if these are not enough, if banks choose to declare Mallya as a wilful defaulter, none of his

group companies will be able to access bank funding.

All this is in theory, and I am not convinced the banks will be able to stick to their guns, but at

this point, one thing is certainthey are fast losing their patience. With no pressure from other

quarters to throw another lifeline to the airline, they are expected to firm up a plan of action by

the end of January and start executing it before the fiscal year ends in March.

Their position will change if Mallya is able to offer money to them in addition to generating

funds that he needs to make the airline operational in a modest way.

If he fails, banks can remove him from the cockpit and hijack his entire empire. They are not as

vulnerable as they seem to be.

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MARKETING

KFA has always positioned themselves as a budget carrier and not as Low Cost Carrier (LCC).

Till this year they have created their recognition through very cost effective yet classy services

both domestically and internationally. They have followed uniquely fun marketing strategies to

make it one of the leading airlines in Asia.

It came up with a very appealing promotional line Fly the good times and it reflected in the

experience the company offered to its passengers.

KFA is also launched Kingfisher RED in order to tap into the growing Low Cost Carrier (LCC)

segment.

The company gave best services to its customers that were like providing world class interiors,

and in-flight entertainment systems.

The company came up with only one class airlines by combining combine Business Class

experiences and Economy Class experiences in one rather than other airlines that had Business

Class; Economy Class.

Having a single class freed up more leg space for passengers when compared to normal economyclass flights.

The company started addressing its customers as GUEST rather than passengers.

KFAs promotional strategy team showcased the airline as the new flying experience.

Advertisements hoardings at airports depicted the stylish interiors of the Funliners, which

conveyed youthful, fun-filled, and world class image.

KFA made use of various fashion shows, celebrity golf matches, New Year parties all to build its

Kingfisher brand.

The UB groups monthly magazine called Pegasus published information about KFA along

with other information related to UB group.


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KFA launched many attractive offers to promote its sales like the King Card in association

with ICICI Bank, in August 2005. This was meant to create loyal customers for KFA by

providing benefits like privileged access to lounges, restaurants, free refreshments at airports,

access to 180 golf clubs across India, special invites for lifestyle shows.

KFA targeted the frequent fliers business traveller segment, which was dominated by Jet

Airways. By offering a King Saver Booklet, This booklet contained six free flight tickets and

was presented as a free gift if the passenger bought two such booklets each worth Rs.

26,999.Passengers could avail off this offer if they showed there Jet Privilege Member (Gold or

Platinum) card.

Marketing Mix

Product

Kingfisher Airlines offers unparalleled service to its guests. The success of this airline in a very

short period of time can be attributed to the novel services introduced by it e.g.

Roving agents: A roving agent is a check-in counter on the move. The guests with hand baggage

are not required to stand in the queue at the check-in counters. The roving agents come to the

customers and assist them.

Different check-in options: The airline allows it customers to do a web check-in from its website

apart from the option of the airport check-in.

Special care for unaccompanied minors, senior citizens and those with reduced mobility: The

airline takes the responsibility of escorting the children safely to their destination. The ground

crew assists in check-in and boarding process. Guest with disabilities can expect a personalized

and caring treatment. An escort with a wheel chair can be assigned to the Guest. Help in check-

in, boarding and disembarkation can also be availed by guests.

In-flight entertainment: Every seat is treated to an individual TV with Live TV as well as well as

pre recorded in-flight entertainment channels and Radio.

Place


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Connectivity: Kingfisher Airlines flies to 38 destinations across India. These 38 locations cover a

wide geography of the country and connect all the metros and the major cities.

Booking of tickets: The customers have an option of booking tickets at the airport, by calling the

customer care, through travel agents and by logging on to their website.

Price

Kingfisher Airlines has been termed as the first full frills-true value carrier. The airline has a

very well defined target audience which is the Sec A and Sec B+ of the Indian economy and that

falls within the age group of 25-45 years with high disposable incomes. This section of the

population is modern, trendy and upwardly mobile looking for a great flying experience. They

have traveled extensively and are aware if the international flying trends. This segment really

doesnt mind shelling out the money as long as they get the experience they are looking for.

Promotion

Kingfisher Airlines has adopted a well rounded approach to reach out to their customers. Their

objective is to create a place in the minds of their customers for their brand and to ensure that the

message gets across effectively. Kingfisher Airlines has a 360 degree promotion strategy in

place. They reach out to their customers through all media of communication such as television,

radio, print, outdoor, malls and multiplexes, clubs and pubs and their in-flight magazine. They

ensure that they communicate with their customers at multiple touch points.

King Club is the airlines loyalty program. As a member of King Club, customers enjoy a range

of exclusive privileges and benefits for each membership level. The more a customer flies with

Kingfisher Airlines the more he will be rewarded.

People

Kingfisher Airlines cabin and ground crew is the hallmark of their services. The real winning

factor for Kingfisher Airlines is the quality of staff service being provided to customers. The

crew undergoes rigorous training programs. Kingfisher Airlines has also instituted the Kingfisher

Training Academy to cater to the growing demand for trained Service oriented professionals.


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The academy provides intensive training on Airlines Orientation covering Airline Rules &

Regulations, Cabin Familiarization and Announcement Delivery.

Process

Following are the processes that add to the satisfaction experienced by Kingfisher passengers:

Kingfisher Airlines facilitates easy booking of tickets. The passengers can book their seats by

calling their 24/7 customer care, by logging on to their website, designated travel agents and at

the airports.

Personalized valet service at all airports across the country. The valet service staff assists the

passengers right from the time they reach at the airport till they check-in and also upon arrival atthe destination they provide assistance with their baggage.

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OPERATIONS

Kingfisher Airlines is reported to have almost shut down 25 centres.

These include Hyderabad, Kolkata, Lucknow, Ahmedabad, Ranchi, Patna, Amritsar,

Bhubaneswar, Indore, Kochi, Nagpur, Coimbatore, Bagdogra, Trivandrum and Kochi, company

executives told NDTV Profit. They declined to be named because of the sensitivity of the matter.

The company is likely to inform its 7,000-strong workforce about these closures in a day or two,

following which some of them will be asked to go on so-called leave without pay, they said,

adding that, eventually, nearly 50 per cent of employees may be asked to go.

The leave without pay route will absolve the airline of having to pay employees the severance

they are entitled to. In any case, Kingfisher has not been able to pay employee salaries for up to

three months. It has also not passed on the tax deducted at source or TDS from their payrolls tothe Income Tax department. The tax authorities subsequently froze the carriers bank accounts.

Shares of Kingfisher Airlines plunged over 6 per cent on the Bombay Stock Exchange.

Meanwhile, the Directorate General of Civil Aviation (DGCA) is ready with a report which will

be submitted to the Civil Aviation Ministry within a day, a government official familiar with the

matter said on condition of anonymity. The ministry will decide on the next course of action

based on the DGCA report.

After a meeting with Kingfisher Airlines chairman Vijay Mallya last week, Director General of

Civil Aviation Bharat Bhushan said that the airlines situation was difficult and that it could

not go on like this.

He added that he had not got any assurance that the carrier would be able to fulfil its liabilities to

airports and oil marketing companies.

Making matters worse, banks have declined to extend working capital to the cash-stricken, debt-

laden carrier that has slipped from being the second largest airline by traffic to holding a mere

10 per cent of market share. Nor have lenders reached a consensus to restructure the $1.3 billion

debt the airline is saddled with.

And with little sign of investors on the horizon that could bring in much-need equity despite,

Mallyas repeated assurances to the contrary, and dwindling revenues because of flight cutbacks

and a shutout from International Air Transport Associations (IATA) ticketing platforms,

Kingfisher is finding it increasingly hard to pay its bills.


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A.K. Ganguly, the last of two independent directors to quit the airlines board, last week said it

needed at least $1 billion to extricate itself from the financial quicksand it is stuck in.

In a sign of the desperate situation he finds himself in, Mallya last week submitted what he

described as a "holding" plan to the DGCA that entailed flying an abbreviated schedule with just

20 planes - less than a third of its former more than 60-strong fleet - and cancelled all

international flights.

The airline could still find its ways out of the woods if the government passes a pending bill to

allow foreign airlines to pick up an up to 49 per cent stake in domestic carriers. Until then, the

airline might have to continue literally flying on a wing and a prayer.

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workers-affected-300541

DOMESTIC OPERATING ENVIRONMENT

The aviation industry growth has continued in Q2 FY12 with 20% growth in domestic demand

over the same quarter (Jul-Sep10) last year

Capacity addition was also continued in the industry with 20% capacity enhancement vis--vis

the same period last year

The load factor in the industry remained stable at 72% in Q2 FY12 versus Q2 FY11 as capacity

addition closely matched demand growth

Yields continued to be under pressure in the industry

Crude oil price has continued above the USD100 mark and shown frequent fluctuations between

USD 100 -120 during this quarter

KFAs load factor at 77% continued to be higher than the industry at 72%

KFAs capacity addition in Q2-FY12 is higher than Q2-FY11 due to unplanned

grounding of aircraft in the same period last year

Domestic operations performance highlights: Q2 FY12

Operating revenue of Rs. 1,145 Cr (5% over Q2 FY11)

9% increase in passenger revenue.
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EBITDA loss of Rs. 195 Cr vs. profit of Rs. 108 Cr in Q2 FY11

Domestic EBITDA margin declined from +9.3% to -15.7%

EBITDAR loss of Rs. 10 Cr vs. profit of Rs. 289 Cr in Q2 FY11

Domestic EBITDAR margin declined from 24.7% to -0.8% in Q2 FY12

Total RASK declined to Rs. 4.24 from Rs. 5.02 in Q2 FY11 (-16%)

Pax RASK decreased by 14% over Q2 FY11 (Rs. 3.56 from Rs. 4.13)

CASK (EBITDA) increased to Rs. 4.90 from Rs. 4.56 in Q2 FY11 (+8%)

Fuel CASK increased by 48% over Q2 FY11 (Rs. 2.00 from Rs. 1.35)

Ex-fuel EBITDA CASK decreased by 10% over Q2 FY11 (Rs. 2.90 from Rs. 3.21)

INTERNATIONAL OPERATIONS PERFORMANCE HIGHLIGHTS

Operating revenue of Rs. 383 Cr (+11% over Q2 FY11)

13% increase in passenger revenues with a 3% increase in capacity

EBITDA loss of Rs. 76 Cr vs. loss of Rs. 53 Cr in Q2 FY11

EBITDA loss increased by Rs. 23 Cr despite Rs. 63 Cr of additional fuel cost impact in Q2

FY12 as compared to Q2 FY11

International EBITDA margin dropped from -15.5% to -19.8% in Q2 FY12

EBITDAR loss of Rs. 12 Cr vs. profit of Rs. 18 Cr in Q2 FY11

International EBITDAR margin dropped from 5.1% to -3.2% in Q2 FY12

Total RASK improved to Rs. 2.61 from Rs. 2.42 in Q1 FY11 (+8%)

Pax RASK growth of +9% over Q2 FY11 (Rs. 2.15 from Rs. 1.97)

ATV improved by 11% over same period last year

CASK (EBITDA) increased to Rs. 3.12 from Rs. 2.79 in Q2 FY11 (12%)

Fuel CASK increased by 34% over Q2 FY 11 (Rs. 1.55 from Rs. 1.16)


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Ex-fuel EBITDA CASK decreased by 4% over Q2 FY 11 (Rs. 1.57 from Rs. 1.63)

KINGFISHER AIRLINES LOSES OPERATING LICENSE

Indebted Indian carrier Kingfisher Airlines has lost its operating license after failing to present

regulators with a clear funding plan.

The airline was suspended in October due to unpaid debts and salaries, but hoped that a funding

plan submitted to the Directorate General of Civil Aviation (DGCA) in December would see its

revival.

However, the plan was not backed by details of financing, leading to the expiry of the license at

midnight December 31.

Kingfisher is permitted to renew the license within two years, according to DGCA regulations,

and the airline claims it is confident of securing approval from the DGCA on the restart plan,

license approval and reinstatement of its operating permit. Doubts still remain as to whether

vital funds will be forthcoming in order to facilitate this.

The carrier, owned by liquor tycoon Vijay Mallya, has estimated debts of US$2.5bn, owing

money to banks, staff, airports and tax authorities. Kingfisher has been grounded since October

and recently saw two-thirds of its 63 aircraft repossessed by creditors.


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PERSONAL PLANS

1. After two rounds of talks in Mumbai on Monday, Kingfisher CEO Sanjay Aggarwaltoday sent a letter to the staff saying the March 2012 salary will be paid on or before

October 25. "We have urged them to accept our offer and should they agree, they will

receive the April 2012 salary on or before October 31 and the May 2012 salary before

Diwali," he said in the letter.

2. The employees, however, were little convinced by the new mail. The employees, whoheld meetings in Delhi, Bangalore, Chennai and Mumbai, rejected the offer. They allege

that the management, by posting such mails to individual employees, was "trying to break

our unity".

3. The management has asked the employees to respond to its offer by October 26.Kingfisher's 4,000 employees haven't been paid in seven months, triggering the latest

strike which has snowballed into a situation that has put a huge question mark on the

airline's fate.

4. Civil Aviation Minister Ajit Singh seemed to sound the death knell when he told NDTVon Monday, "It is unrealistic to expect Kingfisher to fly again." The minister also said,

"Kingfisher has taken its employees for a ride."

5. However, the airline, which had its licence suspended on Saturday, hopes to fly again.The licence was suspended as the airline failed to address the concerns of aviation

regulator Directorate General of Civil Aviation (DGCA) about its operations; the move

forced the debt-laden carrier to stop taking bookings. Sources say the airline is prepping

the revival plan that the DGCA had sought and aims at submitting it before November 6.

6. Controlled by Vijay Mallya, Kingfisher's fleet has been grounded since the start of themonth after a staff protest.

7. Kingfisher owes Rs. 7,500 crore in debt to a consortium of 17 banks, led by the StateBank of India. The lenders together hold around a 23 per cent stake in the airline since

March, after the banks converted their Rs. 6,500 crore of recast debt (after a corporate

debt restructuring, or CDR, in November 2010) into equity.

8. The company's steep decline has underlined the problems of operating in India's airlinesector, where players grappling with rising fuel costs face aggressive pricing caused by


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overcapacity. Kingfisher's troubles will likely help rivals such as Indigo and SpiceJet by

lowering capacity on key routes.

9. The Centre for Asia Pacific Aviation has said a fully funded turnaround for Kingfisherwould cost at least $1 billion.

10.Kingfisher's bankers, which have over Rs. 7,500 crore locked in the ailing airline, willsoon meet to chart out the future course of action, said PNB Chairman and Managing

Director K R Kamath today.

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FUTURE COURSE OF ACTION

Kingfisher lenders will soon decide on future course of action with regard to the grounded airline

as they do not want the company to close down, State Bank of India (SBI) said today.

"The representatives met in Bangalore ... the plan for action the consortium is deciding. We don't

want to put a lock on the company's office," the Chairman of SBI, lead lender to Kingfisher,

Pratip Chaudhuri said here.

Last week, the meeting between lenders and the Kingfisher management remained inconclusive

as bankers were "not impressed" with the revival plan, sources said.

The next meeting will be held in Mumbai soon where lenders are likely to push for bettercommitment from Kingfisher Airlines (KFA), sources added.

The 17-bank consortium has extended Rs 7,000 crore loans to Kingfisher. SBI alone has an

exposure of Rs 1,500 crore, which has not been serviced since January, 2012.

As per the revival plan submitted to Directorate General of Civil Aviation (DGCA) last month,

Kingfisher had said it would require about Rs 652 crore over the next 12 months for running its

operations. These funds would come from the UB Group's resources as banks were unwilling tofund the cash-strapped airline.

Of the Rs 652 crore that the airline would need to restart operations, Rs 120 crore would be

needed to meet salary arrears for its employees.

Kingfisher Airlines CEO is understood to have informed DGCA that the salary dues would be

cleared by giving two months' wages and back wages each month from the next month onwards.

In addition, funds would be required to refurbish the aircraft, including their engines. The

airline's pilots would also have to undergo refresher training and medical tests before they can

start operating flights again.

Kingfisher officials claimed that there were no dues against oil companies, barring interest

payments due to HPCL.


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The airline would have to meet the dues it owe to airport operators, including the Airports

Authority of India (AAI) to which it has an outstanding of over Rs 250 crore.

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airlines-soon/1055792/0#sthash.xC34IWyM.dpuf


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Kingfisher Airlines operating parameters: 3QFY2012

Note: Cost per ASKM calculated at EBITDA cost level

Source: Kingfisher Airlines

Kingfisher Airlines P&L results: 3QFY2012

Source: Kingfisher Airlines

Kingfisher Airlines domestic operating parameters: 3QFY2012

7/30/2019 Kingfish

Kingfisher Financials

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