The end of good times: KINGFISHER

ABOUT KINGFISHER.

Dr Vijay Mallya, flamboyant beer baron, is the Chairman and CEO of Kingfisher Airlines Kingfisher Airlines Limited launched scheduled airline services on May 9, 2005 with 4 daily flights between BOM & BLR and one A-320 aircraft. In 2007, the company had (51) A-320 aircrafts. There are tools for mood lighting such as web chat, in seat plug-in for music, live TV with 16 channels on each seat 100 percent E ticket airline

TIMELINE
2005 Kingfisher Airlines began its operation on 9 th May 2006 Kingfisher Airlines provide live in-flight entertainment by partnering with DTH pioneer Dish TV. Income for the year was INR 13.5 Billion 2007 Kingfisher had (51) A-320 flights and a schedule of 255 flights. Kingfisher Airlines acquired 46% of Air Deccan. 2008 Became larger passenger airline after Jet Airways with a fleet of 77 aircrafts.

2009 Continued its run of the being the nations largest passenger carrier and was hav ing a healthy market share of 22.9% with 11 Million passengers 2010 Market share reduced by 3% to 19.8% and maximum seats were vacant.

2011 Having serious cash flow problems as it faced many problems with the oil companies and many pilots left the airline. Warning from creditors also.
2012 On 5th January, SBI declared Kingfisher Airlines as NPA as the airline is staggering with INR 1500 crores .

COMPARISION

INDIGO

KINGFISHER

PROCEEDS FROM BORROWING V/S REPAYMENT OF The comparison between proceeds from borrowing and repayment of borrowing Focused on fair ideaexpansion by adding Merged with Air Deccan in order to expand give us a inorganic of how aggressively the company is getting into BORROWING Expansion
Business Model
a plane every six weeks increased Second largest carrier carriage with 50 aircraft sectors Operations by passenger Slipped to being the fifth-largest carrier in terms of passenger carriage, grounded over 20 aircraft and now operates with less than 40 planes

Strictly followed a low-cost, single class as Started with single-class model, shifted focus well as aircraft model to premium class and is once again changing to a mix of less premium and more economy

amounts of aggressively in both international and domestic debts.

Management

Repayment of borrowings

Bruce Ashby, first CEO, was in place 18 months before the launch

Proceeds from borrowings

Had only two CEOs since its launch and 2009 2010 2011 Mallya insisted on running the airline 714 887 1,149.70 most of the time
10,306.20 24,128.40 9,231.50

Current Standing In international expansion mode and is Is in deep financial trouble and is cutting back solidly profitable, booking Rs.650 crore in operations with accumulated losses of around 2010-11 from Rs.551 crore in 2009-10 Rs.6,000 crore and debt on its books of over Rs.7,000 crore

IN NEWS

Kingfisher Airlines plans to sell two properties to raise funds SBI not to close down Kingfisher airlines Kingfisher cancelled 12 flights Played No role in firing DGCA chief Banks asked to revalue its brand

INTRODUCTION TO CASE

The current case deals with the crisis at Kingfisher airlines.

It aims to gain insight into the problem through cursory analysis of its financial statements and also comparing some of its aspects with that of other players in the Indian airline industry who have fared better.

CASH-FLOW ANALYSIS OF KINGFISHER Major Cash-flow concerns for an analysts

CASH FLOW SOURCE

Though we see the increasing overall cash-flow, but the thing that should concern a financial analyst should be the source of this cash-flow. The most important drawback of Kingfisher Airlines in this aspect is its decreasing Operating Cash-flow against that from Investment and Financial Activities.

Cash Flow
20,000.00

15,000.00

10,000.00

5,000.00 Axis Title

0.00

-5,000.00

-10,000.00

-15,000.00

-20,000.00 2009 2010 2011

Operating -7,820.80 -17,016.50 -160.6

Investment 4,551.20 3,604.00 952

Financial 2,187.10 13,758.50 -332.5

Overall -1,082.50 346 458.9

DEPRECIATION

Depreciation is increasing year on year and against which the purchase of fixed assets which ideally should increase in the same proportion are not increasing. Moreover, the company did not purchase any fixed asset in 2010, however the depreciation has been increased in the same year.
Depreciation
2500 2000

1500
1000 500 0 Depreciation Purchase of Fixed Assets 2009 1332 2010 1628 2011 2030 2209

INTEREST PAID

Increasing burden of interest on the company on year on year basis can be noticed from the cash flow.

Interest Paid
12,000.00 11,189.30 10,076.70

10,000.00
8,000.00 6,962.30 6,000.00 4,000.00 2,000.00 0.00 2009 2010

Interest Paid

2011

ASSET TURNOVER

The company has sold large amount of fixed asset but has not purchased new assets enough against that.
Chart Title
4500 4000 3500 3000 2500 2000 1500 1000 500 0 Sale of fixed assets Purchase of fixed assets 2009 3,941.60 2010 3,496.20 2011 2,209.40 3,941.60 3,496.20 2,209.40

DECREASING INTEREST RECEIVED

The interest received by the company is decreasing year on year

Interest received
250 200 150 100 50 0 2009 2010 2011 107.8 88.8 Interest received 202.3

ANALYSIS OF SOME CRITICAL RATIOS

CURRENT RATIO

Current Ratio : The higher the current ratio, the more capable the company is

of paying its obligations.

Current ratio

0.64 0.62 0.6 0.58 0.56 0.54 0.52 0.5 0.48 0.46 2009 2010 2011 0.52 Current ratio 0.58 0.62

INTEREST COVERAGE RATIO

Interest Coverage Ratio: The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable.
interest coverage ratio
0.8 1 0.8 0.6 0.4 interest coverage ratio 0.2 0 2009 -0.2 -0.4 -0.19 2010 2011 0.17

RECEIVABLES TURNOVER RATIO

Receivables Turnover Ratio: A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.
2009: 41 2010: 18.3 2011: 16.23

LOSSES WITHOUT PROFITS

Kingfisher has never made a profit since its launch. Revenues increased 8% to INR16.3 billion (USD326 million) in 2QFY2012 but revenue growth was outpaced by a 30% increase in operating costs to INR19.0 billion (USD380.4 million).

Kingfisher Airlines international profit and loss statement: 2QFY2012

Net Sales, Other Income and Total Income have decreased.

Total Shareholders Fund has decreased

A major increase in percentage in Total Debt

Total Investments has also seen a significant decrease

It is seen that the rate of growth of net worth was negative

The EV/EBITDA margins were also declining for the years . Kingfisher Airlines badly needs equity of at least $400 million to meet operational costs and pay down some of its debt.

MORE

Kingfisher pays the highest financial charges among all the airlines in India. Kingfisher is struggling with INR60 billion (USD1.23 billion) in debt with interest on its debt rising from 11% to 14% based on multiple upward interest rate revisions by the Reserve Bank of India. Due to its large debt, Kingfisher spends more than 20% of its revenue on interest, with this high level of debt becoming unmanageable and exceeding the carriers operating profit result. By contrast, Jet Airways, the largest airline in India, allocated only 6.5% of its revenue to interest payment. The company intends to raise up to Rs.2,000 crore through a rights issue. It has a working capital shortage of about Rs.800 crores. It has absolutely no assets that it can sell or mortgage. All its aircraft are currently leased.

MISTAKES COMMITTED BY KINGFISHER.

Some of the possible decisions and factors that led the Kingfisher Airlines into the crisis are
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. Kingfisher was blinded by a desire to overtake Jet Airways and become the king of skies. Focusing in flamboyance, it ignored the low cost airline model.

References:
http://www.moneycontrol.com/news/current-affairs/kingfisher-board-to-explore-waysoutcrisis_6169 http://www.centreforaviation.com/analysis/woes-continue-for-kingfisher-airlines-amid-steeplosses-and-unviable-debt-burden-62975 http://www.firstpost.com/business/endgame-kingfisher-mallya-and-his-grounded-mega-dream219481.html

http://news.airwise.com/story/view/1329823563.html
http://www.moneycontrol.com/news/business/kingfisher-airlines-converts-debentures-intoequity-shares_671753.html

http://www.moneycontrol.com/news/features/endgame-kingfisher-mallyahis-grounded-megadream_671330.html

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