The Curious Case Of Kingfisher.

     May 9th, 2005. A pair of Rolls Royce engines screamed at full power as a brand new Airbus A320 in red-and-white livery lifted off effortlessly from the runway at Bangalore International Airport. It was the day when a Kingfisher grew wings and soared into the Indian skies. Vijay Mallya’s newest baby intended to revolutionize air travel in India, become a force to reckon with, take on the likes of Singapore Airlines and Virgin Atlantic and establish itself as one of the leading airlines in the global skies. It was a venture that looked absolutely picture-perfect on the drawing board. The reality, however, would soon turn out to be far different.

     Little did VJM realize that his Kingfisher would soon turn into a giant albatross around his neck. Little did he know that his Kingfisher would soon transform into a menacing vulture that would almost threaten the very existence of his UB Group. This is a tale of greed, excess, egotistical ambition, corporate mismanagement, financial extravagance and most of all, a business venture gone horribly wrong. This is the story of how a Kingfisher plunged from the skies, dragging a giant Pegasus down with it. All in all, this is the riches-to-rags tale of a doomed entity simply known as Kingfisher Airlines.

The Good Times Begin.

     In a country like India, how do you advertise a brand of beer in a surrogate manner? Launching an eponymous airline would certainly be an unorthodox way. After all, beer and airlines have little in common. Except for the fact that they both make people fly. The UB Group, however, chose to do precisely that. But this was no ordinary airline. Kingfisher ushered in the elements of glamour, luxury and style to the world of air travel. It intended to dominate the Indian aviation market, with a superior offering, at a price that didn’t seem outrageous. Well, Kingfisher achieved all that and more. It soon became India’s airline of choice, providing the finest flying experience in the Indian skies. Awards poured in and a prestigious five-star rating by Skytrax soon followed. The likes of Jet Airways and Air India were soon left far behind in KFA’s tailwinds. The airline continued to add to its fleet, inducting at least one new aircraft each month. Its route network soon began to touch every major Indian city and several tier-2 cities as well. All this, however, came at a price.

     KFA was losing a couple of crores on a daily basis and pretty soon, it began knocking on banks’ doors for funds. The banks, putting their faith in the UB Group’s financial muscle, had no hesitation in loosening their purse strings. In 2007, KFA went on a massive shopping spree at the Paris Air Show. It ordered dozens of ATRs, Airbus A320s, A330s and A340s. The aviation world looked on in awe as KFA even had the audacity to place an order for 5 Airbus A380s. All this, without the airline ever having churned out a single rupee of profit! While KFA was expanding at a blistering pace and its revenues were growing in leaps and bounds, its costs were escalating at an alarming rate, debt levels were mounting and losses were piling up as well. Everything about Kingfisher has an element of red in it, be it the air hostesses’ uniforms, its aircraft or even their interiors. Well, that red was steadily creeping into its financials too. Kingfisher may not have known it then but a major storm was brewing, just over the horizon. Slowly but surely, the good times were turning bad.

Crimson Skies.

     With Kingfisher having firmly established itself in the domestic market as the single largest airline, VJM set his sights on the international space. Even though Kingfisher was more than ready to fly international, it did not have the rights to do so as it hadn’t completed five years of operation then. Desperate times, however, call for desperate measures. After losing to Jet Airways in a bidding war for Air Sahara, KFA did the unthinkable. It acquired Air Deccan, India’s leading low-cost airline at that time, for a whopping sum of Rs. 1300 crores. That acquisition, however, added a back-breaking debt of Rs. 3000 crores to an already stretched balance sheet. The business models of Kingfisher and Air Deccan (which was subsequently rebranded as Kingfisher Red) were poles apart. While the former was a full-service carrier, the latter was in the low-cost space. The synergy was clearly lacking but that didn’t seem to deter VJM at all. With Air Deccan’s international flying rights in his back pocket, he launched a Bangalore-London route, with an all new, state-of-the-art Airbus A330 jet, thus mounting a direct challenge to British Airways. KFA soon expanded to Dubai, Hong Kong, Bangkok and Singapore, stealing market share from its international peers. Everything was seemingly going smoothly but just as they say, there’s always the calm before the storm.

     The storm that hit the corporate world in 2008 was no ordinary one. As the global economy sank into recession, the airline industry was its first victim. If that wasn’t enough, crude oil spiked to $147/barrel, which sent ATF prices sky-rocketing worldwide. Every airline was bleeding heavily and KFA was certainly no exception. With a massive fleet of 89 aircraft, KFA’s losses were topping Rs. 1000 crores annually and it had already leveraged itself to the hilt. As a result, Kingfisher found itself trapped between the devil and the deep sea. Furthermore, the airline was cash-starved and it began defaulting on payments to its ATF suppliers and the airports, many of which put the airline on cash-and-carry mode. To tide over the crisis, the airline raised an additional debt of Rs. 2000 crores from various banks. KFA’s colossal debt was secured by UB Holdings’ corporate guarantees, VJM’s personal guarantee and a 90% pledge of his shareholding in his golden goose, United Spirits. If it was any consolation to VJM though, every airline in India was in the red. Only Rahul Bhatia’s low-cost carrier, IndiGo was making money. Supposedly. Even though Kingfisher subsequently trimmed its fleet size to 66 aircraft and stopped operating on the unviable routes, its debt soon reached an alarming level of Rs. 8000 crores and the airline was haemorrhaging cash faster than ever. It was losing over Rs. 5 crores on a daily basis. As Dr. Evil would proclaim, “One million dollars!!!” Tragically though, Kingfisher found itself trapped on a turbulent flight path to the point of no return.

God Save The King.

     In November 2010, with its losses mounting, debt levels intensifying and a severe liquidity crunch on hand, KFA approached its banks for a corporate debt restructuring (CDR) package. With Kingfisher already having defaulted on some of its interest payments, the 17 banks that had lent to the airline had no choice but to oblige. The overall interest rate on KFA’s debt was reduced from 14% to 11% and Rs. 1500 crores of debt was converted into equity, at a price of Rs. 64/share, which was a significant premium to the then-ruling KFA share price of Rs. 40. This debt-to-equity conversion gave the banks a 23% ownership of KFA. These measures did provide some temporary relief, as KFA’s losses dipped and its cash flow position did improve marginally. However, the massive debt component continued to hang over KFA’s head like a sword of Damocles. With his airline in dire straits, VJM intensified his long-standing demand for the authorization of foreign direct investment (FDI) by foreign airlines in the Indian aviation sector. He contended that both British Airways and Singapore Airlines had expressed interest in picking up a stake in Kingfisher. It appeared as if the King was in frantic need of a knight in shining armour.

     In late 2011, Kingfisher’s nightmares resurfaced. The airline began defaulting on its interest payments to banks, tax deducted at source (TDS) payments to the government, payments to airport operators, lease rentals for its aircraft and salaries to its employees. These long overdue payments still haven’t materialized and Kingfisher has been dragged to court by almost every party. Its shares are trading at an all-time low. As the leasing companies began repossessing their aircraft, scores of flights were cancelled across the board, thus leaving thousands of guests in the lurch. Along with the passengers, KFA’s employees too deserted the airline, after not having been paid in months. Other airlines are making hay while the sun shines and airfares are showing an upward trend. In the in-flight welcome video aboard KFA, Vijay Mallya states, “I know you have a choice of flying other airlines. Thank you for flying Kingfisher!” The harsh reality was that more and more passengers were firmly exercising that choice.

The End Of The Good Times.

     With a loss of over Rs. 2200 crores in FY12, a request for a second CDR package turned down, an International Air Transport Association (IATA) suspension, a foreign investor nowhere in sight and banks cutting their feeder links, Kingfisher’s prospects of recovery are indeed bleak. With its license having expired, the airline is now well and truly grounded. Banks have asked the promoters to infuse at least Rs. 2000 crores of equity before they grant any further loans to the airline. They have also asked the airline to come up with a viable revival plan first. Even though aviation FDI has been given the green signal, it remains to be seen if any foreign carrier will invest in the beleaguered Kingfisher. Even if Kingfisher is somehow recapitalized, getting it off the ground and turning it around from here on seems to be a Herculean task. With its wings having been virtually clipped, Kingfisher has gone into a deadly tailspin. The good times might just be over for good.

The Curse Of Kingfisher.

     Kingfisher has raked up a debt of Rs. 8000 crores and accumulated losses of Rs. 8000 crores in its 7 years of operation. That, however, is the nature of the beast. Moreover, its debt was backed by VJM’s stake in United Spirits. The possibility of shutting down Kingfisher was entirely ruled out, as VJM would have lost USL as well since the banks would have sold his pledged shares to recover their dues. The only way out was to sell a majority stake in United Breweries to Heineken (which already holds a 37.5% stake in UB) or to sell a minority stake in United Spirits to either Diageo or Bacardi and clear KFA’s dues. The latter seemed to be a more sensible alternative and in November 2012, the liquor baron bit the bullet and did just that. Diageo acquired a 25.02% stake in United Spirits and the UB Group received a consideration of a little over Rs. 3000 crores. However, the cruel irony is that not a single rupee has flown towards putting Kingfisher back in the skies again. Mallya has offered to pump in Rs. 625 crores but KFA’s bankers are not willing to play ball for anything less than Rs. 2000 crores. Kingfisher, on its part, would need all that money, either to be recapitalized and resurrected or to be shut down and liquidated. Sadly, Kingfisher has proved to be nothing more than a millstone around the UB Group’s neck and VJM’s distillery assets have been sacrificed at the altar of his egotistical ambitions and his unexplainable love for his airline.

     After all, that entire sum of Rs. 16,000 crores which was squandered in Kingfisher would have produced stupendous returns, had it been invested in the UB Group’s core businesses. Then again, as the saying goes, it’s no use crying over spilt milk. Or in this case, spilt beer. The bottom line is that the entire Kingfisher saga has left Vijay Mallya half-naked. Just like those sexy models in the Kingfisher Calendar.

Will The Good Times Ever Return?

     So where does that leave Kingfisher? Well, there are two flight paths it can take from here on. Kingfisher is either going to go belly up and turn out to be the biggest bankruptcy in Indian corporate history or the airline is going to stage the greatest financial turnaround that India Inc. has ever witnessed. Either way, Vijay Mallya’s task is surely an unenviable one. But is there hope? Well, there most certainly is. It’s true that the good times don’t last forever. Then again, neither do the bad ones.

     Confidence, however, is not something that VJM lacks. After all, he did emphatically state, at a recent press conference, that “Kingfisher will survive. Kingfisher will flourish. And we will prove you all wrong.” And so, if those words do indeed turn prophetic, then a day will come in the year 2020 when a King-sized Airbus A380 in red-and-white KFA livery will lift off from the runway at Bangalore International Airport. Its destination, you might ask? New York JFK. That would be the day when Kingfisher would truly be ….. flying the good times.