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18-03-2012 1KINGFISHER AIRLINES CRISIS

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INTRODUCTION The Kingfisher Airlines commenced operations in 2005, it has been reporting

losses. After acquiring Air Deccan, Kingfisher suffered a loss of

over 1,000 crore (US$220 million) for three consecutive years. By early 2012, the

airline accumulated losses of over 7,000 crore (US$1.54 billion).


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PROBLEMS IDENTIFIED

Debt Recast

Delayed Salary

Fuel Dues

Aircraft Lease Rental Dues

AAI Reports

Service Tax

Bank Arrears


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DEBT RECAST In Nov 2010, Kingfisher Airlines has completed

restructuring 8,000 crore (US$1.76 billion) debt, with all 18 lenders agreeing to cut

interest rates and convert part of loans to equity.

Debt Recast Package (DRP):

Conversion of debt of up to 1,355 crore (US$298.1 million) from lenders into share

capital.

Conversion of debt of up to 648 crore (US$142.56 million) from promoters into sharecapital.

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.18-03-2012 4KINGFISHER AIRLINES CRISIS

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DELAYED SALARY Kingfisher Airline has staff strength of 6,000 and

spends 58 crore (US$12.76 million) on salaries a month. According to the

first quarter financial results, it has 173.66 crore (US$38.21 million) underthe employees cost head, which has increased

from 163.40 crore (US$35.95 million) during the same quarter last year.

Kingfisher Airlines delayed salaries of its employees in August 2011,and

for four months in succession from October 2011 to January 2012.


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FUEL DUES HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL)

stopped the fuel (ATF) supplies for about two hours to Kingfisher airlines

owing to the non-payment of dues. Situation was later resolved. In the pastseveral years, Kingfisher airlines has had trouble paying their fuel bills.

BPCL: Bharat Petroleum Corporation in 2009 had filed a case against

Kingfisher airlines for non-payment of dues. High court in an order said

that the entire amount ( 245 crore (US$53.9 million)) had to be paid by Nov

2010 and the airline paid it in installments.


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AIRCRAFT LEASE RENTAL DUES Since 2008, it has been reported that Kingfisher Airlines has been unable to

pay the aircraft lease rentals on time.

In Nov 2008, GE Commercial Aviation Services threatened to repossess 04leased planes in lieu of default.

In Jul 2010, DVB Aviation Finance Asia Ltd (a lessor from Singapore),

sued Kingfisher Airlines for lease rental default.

Kingfisher Airlines has grounded 15 out of 66 aircraft in its fleet as it wasunable to meet the maintenance and overhaul expenses.


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AAI REPORTSKingfisher received a notice from the Airports Authority of India on

February 2012 regarding accumulated dues

of 255.06 crore (US$56.11 million). The airline was operating on acash and carry basis for the last six months, with daily payments

amounting to 0.8 crore (US$176,000).


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SERVICE TAX On 9 December 2011, S.K. Goel, chairman, Central Board of Excise and

Customs (CBEC) announced that CBEC is considering legal action against

Kingfisher for not paying service tax. As on 10th Jan 2012, KingfisherAirlines has service tax arrears of 60 crore (US$13.2 million).

The Ministry of Finance has given a concession to Kingfisher and

instructed them to pay the dues by 31st Mar 2012. In Jan 2012, Kingfisher

paid 20 crore (US$4.4 million) towards its dues for December 2011 and

part of the arrears.


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BANK ARREARSKingfisher Airlines had not paid some bankers (Lenders) as per the

Debt Recast Package (DRP) with lending banks. Till the end of Dec

2011, the arrears were estimated to be 260 crore (US$57.2million) to 280 crore (US$61.6 million). Lenders hence had told

Kingfisher Airlines to clear its dues before they can release any more

money sought by the Airline.


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LITERATURE REVIEW

Airline IndustryAsia Pacific Region.

Effect of Oil Prices on Airline Industry.

South West Air Line Case Analysis.


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