International J ournal of Business and Management Cases Vol. 1 No.

3
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Crisis and Debt Restructuring at Kingfisher Airlines

Bhavdeep S Kochar, Assistant Professor, Lovely Professional University

Abstract
Airlines industry has always been a very challenging one to operate in. Very few companies are actually earning
profit in this industry. Kingfisher Airlines, a dream venture of Vijaya Mallya also stepped into this industry to
create a difference and to redefine the experience of flying. But Kingfisher Airlines once known for its premium
quality and class is in the deep crisis now and is actually fighting for its space in the sky. The study aims to
analyze the crisis at Kingfisher Airlines and the measures taken by the company to overcome the same with a
special focus on Debt Restructuring done by the company in 2010-11.

Keywords: Kingfisher, Airlines, Debt Restructuring

1. News of Kingfisher Airlines
May 2009: Kingfisher Airlines carried more than 1 million passengers, giving it the highest market share among
airlines in India.
March 2010: 5-STAR AIRLINE CROWN FOR KINGFISHER AIRLINES, Top global recognition for
Indias premium carrier AGAIN for 3
rd
consecutive year.
November, 2010: Kingfisher Airlines King Club Program Awarded the Best Program of the Year in the
Middle East and Asia/Oceania region by The Frequent Traveler Awards
December 2011: Kingfisher Airlines had the second largest share in India's domestic air travel market.
2011: Kingfisher Airlines crowned the Best Indian Airline in UK.
2012:
By early 2012, the airline accumulated losses of over 7,000 crore (US$1.4 billion) with half of its fleet grounded
and several members of its staff going on strike because of their unpaid salaries. Kingfisher's position in top
Indian airlines on the basis of market share slipped to last from second because of the crisis.
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March 2012: Government may cancel Kingfisher Airlines license: Ajit Singh (Indian Aviation Minister)

Kingfisher airlines once the king of sky is fighting for the sky.

I will bounce back
- Vijay Mallya

2. Brief about Kingfisher Airlines
Kingfisher Airlines established in 2003 is owned by the Bengaluru based United Breweries Group. The airline
commenced its domestic commercial operations from 9 May 2005 with a fleet of four new Airbus taken on lease
and operating from Mumbai to Delhi. Ever since its launch, Kingfisher redefined the experience of flying by
adding all new range of innovative products and services for its customers, like the In-flight Entertainment (IFE)
system on domestic flights.

Kingfisher planes crossed the domestic sky on 3 September 2008 by starting a flight from Bengaluru to London
and further to Hong Kong, Dhaka, Colombo, Singapore, Bangkok and Dubai.

On December 19
th
2007, the big fish (Kingfisher Airlines) galloped the small fish (Air Deccan, low cost
airlines). United Breweries (UB Group), the parent company of Kingfisher Airlines acquired 46% of Air
Deccans parent Deccan Aviation.

3. How Problems started at Kingfisher Airlines
Kingfisher Airlines had been reporting losses since 2005, as it never reached its break-even and the situation
aggravated in 2007, when Kingfisher acquired Air Deccan after which the former suffered a loss of over 1,000
crore INR for three consecutive years. By early 2012, Kingfisher had accumulated losses of over 7,000 crore
INR with several flights grounded and staff going on strike due to non-payment of salaries. The market share of
Kingfisher Airlines slipped to last from second due to this crisis.

3.1 Start of the Crisis and Financial Problems at Kingfisher Airlines
Kingfisher Airlines witnessed various problems during its crisis. How all it started and what were the difficulties
faced by Kingfisher during this have been highlighted as follows:

3.1.1 Fuel Dues
Since past several years, Kingfisher Airlines was defaulting in making fuel bill payments and in July 2011,
HPCL (Hindustan Petroleum Corporation Limited) expurgated the fuel supply for around 2 hours to Kingfisher
Airlines in lieu of non-payment of overdue fuel bills.

Bharat Petroleum Corporation in 2009 filed a case against Kingfisher airlines again for non-payment of fuel
dues. High Court in its order directed Kingfisher to pay the entire due amount (INR 245 crore) by November
2010 and Kingfisher obliged the Court order by paying the dues in installments.

3.1.2 Delayed Salary
Owing to dearth of funds, Kingfisher Airlines didnt paid salaries to its employees from October 2011 to
January 2012.

Kingfisher in its report to DGCA (9
th
Jan, 2012) stated that the salary dues has been paid to 60% of its
employees and the remaining due salary will be paid latest by 31
st
January 2012.

In between, Kingfisher pilots, protesting against the non-payment of salaries started making in-flight
announcements quoting "It is their sense of duty towards the guest that is making them fly despite not being
paid salaries for the past two months". Kingfisher also defaulted in paying Tax Deducted at Source from the
employees income to the tax department.

3.1.3 Dues of Aircraft Lease Rent
Kingfisher Airlines was making default in aircraft lease rentals. As a result, in Nov 2008, GE Commercial
Aviation Services (one of the lessors to Kingfisher Airlines) cautioned Kingfisher to retrieve 04 leased A320
planes in lieu of default. Kingfisher Airlines initially denied regarding any default in payment. GECAS in return
filed a complaint with DGCA seeking repossession of four A320 aircrafts. To this, Kingfisher Airlines in Jan
2009 made petition with Karnataka High Court that to refrain GECAS from repossessing the aircrafts, but the
Court rejected the same and Kingfisher had to return aircrafts to GECAS.
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Again in July 2010, DVB Aviation Finance Asia Ltd (a lessor from Singapore), prosecuted Kingfisher Airlines
in a UK court for not paying lease rent of A320 (Aircraft leased from DVB) for three months.

Till now, 15 out of total 66 aircrafts in the fleet of Kingfisher Airlines were grounded and Kingfisher was facing
problem in meeting maintenance and overhaul expenses.

3.1.4 AAI Slams Notice
Kingfisher Airlines was functioning on a cash & carry basis for the past 6 months, with daily payments
amounting to 0.8 crore INR. As a result, Airports Authority of India on February 2012 slammed notice to
Kingfisher regarding accumulated dues of 255.06 crore INR. The airline was operating on a cash and carry basis
for the last six months, with daily payments amounting to 0.8 crore INR.

3.1.5 Service Tax Dues
Kingfisher also being a defaulter in service tax payments got warning from S.K. Goel (Chairman, Central Board
of Excise and Customs) on 9 December 2011 regarding possibility of legal action against Kingfisher for not
paying service tax. Kingfisher Airlines as on 10th Jan 2012, had service tax arrears of 60 crore INR. The
Airlines got a concession from Ministry of Finance and an order to pay the dues by 31
st
March 2012. Kingfisher
paid 20 crore INR in January 2012 towards its dues for December 2011 and part of its arrears.

3.1.6 Kingfisher Airlines A NPA
Till December 2011 end, the bank dues of Kingfisher Airlines were around INR 260 crore to INR 280 crore.
Lenders refused to lend any more money to Kingfisher till the previous dues are clear. If the dues were not paid
in time, Kingfisher Airlines would automatically have been treated as NPA (Non-performing asset) in the
accounts of banks. So, the airlines paid one month interest amount to the banks on the last working day of 3
rd

quarter of financial year 2011-12 to avoid turning Kingfisher Airlines account into NPA.

But, State Bank of India (SBI), the largest creditor to Kingfisher Airlines and the leader of consortium of banks
in DRP (Debt Recast Package) declared Kingfisher Airlines a NPA on 5th Jan 2012. SBI had an exposure of
INR 1,457 crore in Kingfisher Airlines. By Feb 2012, many more banks declared Kingfisher Airlines as NPA.
Those were SBI, Bank of Baroda, PNB, IDBI, Central Bank, BOI and Corporation Bank

3.1.7 Other Problems
Kingfisher Airlines suffered many other problems like, Erosion of its net worth; Frozen bank accounts; Much of
its fleet grounded; and Suspension of ticket sales by IATA on March 7, 2012 on account of non-payment of
dues. All these problems further graved the situation.

4. Measures taken by Kingfisher Airlines During Crisis
4.1 Key Revenue Initiatives
One world alliance Membership: to drive inbound domestic passenger growth
Co-branded credit cards: introduced King Club ICICI co-brand card
Kingfisher Express: DTD Cargo Express service to tap under penetrated air-cargo delivery service.

4.2 Key Cost Reduction Initiatives
Rationalizing distribution channels: Reduction of S&D costs by reviewing distribution channels,
negotiating GDS contracts
Renegotiating vendor agreements:
o Additional airport and fuel discount
o Additional discounts from airports
o E&M costs to reduce with new vendor
o Renewal of operating leases at a discount to existing rates
Control discretionary Spend
o Reduce rentals, cost of transportation, local conveyance and communication
o Optimize space
Operational efficiency
o Reduce fuel consumption for Airbus and ATR operations
o Target E&M spend reduction (in house C-checks, Controlled re-delivery)

4.3 Capital Recast
Debt Re-schedulement (discussed in detail in later section of this study)
Equity Infusion
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5. Kingfisher Airlines Capitalizing its Expenses
Kingfisher Airlines moved from expensing to capitalizing in its Financial Statements in 2011.
Capitalizing: When the company distribute the cost of acquiring asset over a period of years.
Expensing: When cost of acquiring is shown in one year as a current expense.

The benefit of capitalizing costs is that both the EBITDAR and the EBITDA metric dear to KAIR are
inflated and remain unaffected by the subsequent increase in amortization that flows below the
EBITDA/EBITDAR line, which was highly criticized by Veritas, a Canadian research Company.

5.1 Effects of Capitalization on Key Figures
Company may follow expensing or capitalizing method to record some items in its financial statements. And
both the methods affect companys balance sheet, income statement and cash flow statement in a different
manner. Apart from this, the companys financial ratios also depict different picture based on the method used.
The impact of capitalizing over expensing on various ratios has been summarized below:

Net Income: A company capitalizing its expenses will report higher profit initially as compared to expensing
where higher profits will be shown in the later years.
Stockholders' Equity: Expensing firms will have lower stockholders equity in the initial years, lesser profits
and thus slighter retained earnings vis--vis capitalizing.
Assets Reported on the Balance Sheet: A company that capitalizes its costs will report higher total assets as
compared to the case when company expenses the same costs.

6. Debt Recast by Kingfisher Airlines
Kingfisher Airlines in 2010 was allowed to recast its debt in lieu of ongoing crisis. By Nov 2010, Kingfisher has
restructured 8000 crore INR worth of debt in which all of its 18 lenders agreed to cut interest rates and convert
part of their loans given to Kingfisher into equity. Lenders converted 650 crore INR of debt into preference
shares which further was to be converted into equity when the airline lists on the Luxembourg Stock Exchange
by selling global depositary receipts (GDR). Shares were to be converted into ordinary equity at a price at which
the GDRs are sold to investors. Besides the 1,400 crore INR debt which was converted into preference shares,
another 800 crore INR debt was converted into redeemable shares for 12 years.

As a part of debt recast, Promoters and Bank debt which were converted to Compulsory Convertible Preference
Shares, were further on 31
st
March 2011 converted into equity at INR 64.48 which was higher than the then
market price of INR 39.90.

After the Recast Airline's average interest rate came down to 11%, helping the airline save 500 crore INR every
year on interest cost. Consortium of banks, who were lenders to Kingfisher and a part of debt recast, was
represented by SBI Capital Markets.

The salient features of the DRP thus include:
Conversion of debt of up to 1,355 crore INR from lenders into share capital.
Conversion of debt of up to 648 crore INR from promoters into share capital.
Reschedulement of repayment of the balance debt to lenders over 9 years with a moratorium of 2 years.
Reduction in interest rates.
Sanction of additional fund and non-fund based facilities by the lenders.

The recast plan involved the issuing of the following types of preference shares:
Share type Dividend Maturity Quantity Price Recipient
Redeemable Cumulative
Preference Shares
8% 12 years 575,000,000
10
(US$0.2)
Consortium of lenders
Compulsorily Convertible
Preference Shares
7.50% 12 years 780,000,000
10
(US$0.2)
Consortium of lenders
Compulsorily Convertible
Preference Shares
7.50% 12 years 648,000,000
10
(US$0.2)
United Breweries (Holdings) Ltd,
Kingfisher Finvest India Ltd
Optionally Convertible
Debentures
8% 12 years 20,000,000
100
(US$2)
Star Investments Ltd.
Optionally Convertible
Debentures
8% 12 years 30,000,000
100
(US$2)
Margosa Consultancy Pvt. Ltd.
Optionally Convertible
Debentures
8% 12 years 30,000,000
100
(US$2)
Redect Consultancy Pvt. Ltd.
Table 1
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In addition to these issues, 9,700,000 units of 6% Redeemable Preference Shares of INR 100 each issued to
United Breweries (Holdings) Ltd. (Promoter Company) were converted to 97,000,000 units of 6% Compulsorily
Convertible Preference Shares of INR 10 each.

The loans given by the banks to KAIR were 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
and cumulatively redeemable preferred shares. The banking consortium was now both an owner and a creditor
to the airline.

Kingfisher Airlines, in Nov 2011 tried for a second debt recast, but was ruled out by Government of India.

6.1 Recast Pledge
Kingfisher Airlines has pledged its brand as collateral with its lender consortium for 4,100 crore INR. The brand
valuation being done by Grant Thorton in 2010. The Brand was valued and loan raised worth triple the carriers
market value.

On July 6, 2011, pursuant to requirements prescribed under the Debt Recast Package Kingfisher Airlines'
founder companies, United Breweries (Holdings) Ltd and Kingfisher Finvest Ltd, have pledged their entire
stake in the airline with certain of its lenders. United Breweries Holdings Ltd held 199,598,555 shares
(representing 40.1% of total outstanding shares) in the airline and pledged all the shares to lenders. At the same
time, Kingfisher Finvest Ltd held 63,478,570 shares (representing 12.75% of total outstanding shares) pledged
its entire holding to the lenders.

The following table concludes the Debt Recast Structure:
Particulars (In Rs.
Crore)
Debt before
recast
Conversion of debt Additional loan
Debt post
recast To CCPS
To
CRPS
To
OCDS
To
WCTL
FITL RTL
Working capital 590.5 (297.40) 293.10
Term loan 4,263.49 (750.10) (553.10) 297.40 248.42 768.30 4,274.40
PDP loan 166.44 166.44
Promoter loan 656.30 (648.00) 8.30
Inter corporate
deposit (ICD)
1,137.32 (709.32) 428.00
Sub Total 6,814.0 (1,398.10) (553.10) (709.32) - 248.42 768.30 5,170.2
Other short
term loan
75.20 75.20
Hire Purchase 86.15 86.15
Finance lease 675.73 675.73
Grand total 7,651.12 (1,398.10) (553.10) (709.32) - 248.42 768.30 6,007.30
Table 2

CCPS: Commulative Convertible Preference Shares
CRPS: Commulative Redeemable Preference Shares
OCDS: Optionally Convertible Debentures
WCTL: Working Capital Term Loan
FITL: Funded Interest Term Loan
RTL: Rupee Term Loan



Bhavdeep S Kochar,
Assistant Professor,
Lovely Professional University


References
Ahmed, S., & Mahfooz, Y. (n.d.). Consolidation in the sky- a case study on the quest for supremacy between jetlite and kingfisher
airlines. Retrieved from http://www.iitk.ac.in/infocell/announce/convention/papers/Industrial Economics Environment,
CSR-04-Salma Ahmed, Yasser Mahfooz.pdf
Baker, J., & Streeter, M. JP Morgan, North America Corporate Research. (2006). U.S. airlines
Berman, K., Knight, J., & Case, J. (2008). The magic of managing the balance sheet. Harvard Business Press
Celestine, A. (2011, November 13). Kingfisher airlines bailout: Why options before government & banks are limited. The Economic
Times. Retrieved from http://articles.economictimes.indiatimes.com/2011-11-13/news/30391494_1_cdr-kingfisher-airlines-loans
Fly kingfisher, media center. (n.d.). Retrieved from http://www.flykingfisher.com/media-center/press-releases.aspx
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Government may cancel kingfisher airlines license: Ajit singh. (2012, March 20). Retrieved from
http://www.ndtv.com/article/profit/government-may-cancel-kingfisher-airlines-license-ajit-singh-300114
Icici bank deplanes, sells Rs 450 crore kingfisher airlines loans to srei fund. (2012, July 03). The Economic Times. Retrieved from
http://articles.economictimes.indiatimes.com/2012-07-03/news/32523653_1_loans-second-largest-lender-kingfisher-airlines
Kingfisher Airlines, (2011). Kingfisher airlines. Retrieved from website: http://www.flykingfisher.com/pdf/investor-presentation-
june-2011.pdf
Kingfisher airlines - the 'funliner' experience. (2006). Retrieved from
http://www.icmrindia.org/casestudies/catalogue/Marketing/Kingfisher Airlines Funliner Experience 4.htm
Kingfisher: Banking imprudence, crony capitalism, failed regulation & poor corporate governance. (2012, February 22). Retrieved
from http://www.moneylife.in/article/kingfisher-banking-imprudence-crony-capitalism-failed-regulation-poor-corporate-
governance/23835.html
Kingfisher slams veritas report. (2011, September 16). The Times of India. Retrieved from
http://timesofindia.indiatimes.com/city/mumbai/Kingfisher-slams-Veritas-report/articleshow/10000414.cms
Kingfisher airlines. (n.d.). Retrieved from http://www.moneycontrol.com/financials/kingfisherairlines/profit-loss/KA02
Kingfisher airlines. (2012, June 25). Retrieved from http://en.wikipedia.org/wiki/Kingfisher_Airlines
Monga, N. Veritas Investment Research Corporation, (2011).A pie in the sky
Now, IATA suspends Kingfisher from billing plan. (2012, March 09). Retrieved from http://ibnlive.in.com/news/now-iata-suspends-
kingfisher-from-billing-plan/237449-7.html
Pigeaux, I., & Leleux, B. (2008). Air Deccan(b):kingfisher and the king of good times. doi: 617.783.7860
Trivedi, G. (2008, January 25). Case study: Kingfisher takes flight with roving agents. Retrieved from
http://howto.techworld.com/networking/3945/case-study-kingfisher-takes-flight-with-roving-agents/


Table 3: Top three banks in the consortium, which accounted for 62% of the CCPS
(All Figures in Million Rupees & bracketed figure in million US$)
Bank Value of CCPS shares acquired
State Bank of India 1822 (40)
ICICI Bank 1700 (37)
IDBI Bank 1125 (25)

Table 4: Financials of Kingfisher Airlines
Mar '11 Mar '10 Mar '09 Mar '08 Jun '07

12 months 12 months 12 months 9 months 12 months
Sources Of Funds
Total Share Capital 1,050.88 362.91 362.91 135.80 135.47
Equity Share Capital 497.78 265.91 265.91 135.80 135.47
Share Application Money 2.95 7.48 8.11 10.09 0.00
Preference Share Capital 553.10 97.00 97.00 0.00 0.00
Reserves -4,005.02 -4,268.84 -2,496.36 52.99 249.23
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Networth -2,951.19 -3,898.45 -2,125.34 198.88 384.70
Secured Loans 5,184.53 4,842.43 2,622.52 592.38 716.71
Unsecured Loans 1,872.55 3,080.17 3,043.04 342.00 200.00
Total Debt 7,057.08 7,922.60 5,665.56 934.38 916.71
Total Liabilities 4,105.89 4,024.15 3,540.22 1,133.26 1,301.41
Mar '11 Mar '10 Mar '09 Mar '08 Jun '07
12 months 12 months 12 months 9 months 12 months
Application Of Funds
Gross Block 2,254.26 2,048.14 1,891.80 322.33 340.77
Less: Accum. Depreciation 682.37 493.62 316.29 43.55 33.74
Net Block 1,571.89 1,554.52 1,575.51 278.78 307.03
Capital Work in Progress 673.35 980.61 1,630.95 346.25 357.62
Investments 0.05 0.05 0.05 0.00 0.41
Inventories 187.65 164.88 147.25 48.64 61.62
Sundry Debtors 440.53 322.49 229.84 27.16 35.24
Cash and Bank Balance 88.18 50.91 49.41 5.84 422.05
Total Current Assets 716.36 538.28 426.50 81.64 518.91
Loans and Advances 5,380.19 4,604.31 3,640.42 832.49 149.77
Fixed Deposits 164.18 155.56 122.45 274.29 395.00
Total CA, Loans & Advances 6,260.73 5,298.15 4,189.37 1,188.42 1,063.68
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 4,463.86 3,908.03 3,814.63 687.31 449.15
Provisions 62.11 46.77 45.55 9.52 6.94
Total CL & Provisions 4,525.97 3,954.80 3,860.18 696.83 456.09
Net Current Assets 1,734.76 1,343.35 329.19 491.59 607.59
Miscellaneous Expenses 125.84 145.64 4.51 16.64 28.75
Total Assets 4,105.89 4,024.17 3,540.21 1,133.26 1,301.40
Contingent Liabilities 22,920.23 23,135.77 27,468.70 6,797.11 7,485.33
Book Value (Rs) -70.46 -150.54 -83.88 13.90 28.40




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Table 5: Year by year financial results of Kingfisher Airlines,
(All values are depicted in Indian rupee (INR) crore except EPS, which is in plain INR)
Sr. No. From To Months Total Income Cost Net Profit EPS
01 Apr-05 Jun-06 15 1,352 1,689 -337 -68
02 Jul-06 Jun-07 12 2,142 2,562 -420 -42
03 Jul-07 Mar-08 09 1,546 1,734 -188 -11
04 Apr-08 Mar-09 12 5,577 7,186 -1,609 -55
05 Apr-09 Mar-10 12 5,271 6,918 -1,647 -54
06 Apr-10 Mar-11 12 6,496 7,523 -1,027 -16
07 Apr-11 Sep-11 06 3,410 4,142 -732 n/a
Total 78 25,793 31,754 -5,960