A STUDY ON THE CAUSES OF FINANCIAL CRISIS IN THE INDIAN AVIATION INDUSTRY WITH SPECIAL REFERENCE TO - KINGFISHER AIRLINES - IAEME Publication
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Journal of Management (JOM)
Volume 7, Issue 1, January – February 2020, pp. 27–40, Article ID: JOM_07_01_005
Available online at http://www.iaeme.com/jom/issues.asp?JType=JOM&VType=7&IType=1
Journal Impact Factor (2019): 5.3165 (Calculated by GISI) www.jifactor.com
ISSN Print: 2347-3940 and ISSN Online: 2347-3959
© IAEME Publication
A STUDY ON THE CAUSES OF FINANCIAL
CRISIS IN THE INDIAN AVIATION INDUSTRY
WITH SPECIAL REFERENCE TO –
KINGFISHER AIRLINES
Prof. Baisakhi Debnath
Assistant Professor, Jain Deemed-to-be University, India
Sushan A Shantharam
th
Student, BBA, 5 Semester, Jain Deemed-to-be University, India
Anmisha Reddy Dwarampudi
th
Student, BBA, 5 Semester, Jain Deemed-to-be University, India
Dasari Sri Vidya
th
Student, BBA, 5 Semester, Jain Deemed-to-be University, India
ABSTRACT
India is a country where Air Travel in the early 90’s was a luxury, wherein the
masses couldn’t even think of air travel the fares as it was very expensive. Even the
Indian Aviation Industry wasn’t up to that standard of other countries when
Mr.Naresh Goyal entered the aviation industry with his new baby Jet airways on 1st
April 1992 to change the portrait of the industry as he had good knowledge of the
working of the industry. Goyal was the person who changed the image of Indian
Aviation industry in the global map by creating new routes he also gave prominence
to his pilots, technicians & airhostess by giving them good pay package. He made the
air fares reasonable in comparison to its competitors. Jet Airways has been through a
lot of ups and downs in the process. In addition to Jet Airways, there were many
airlines which could not perform well In the Indian Aviation Industry. Tata Airlines
(now known as Air India), Sahara Airlines (later known as Jetlite), Kingfisher Airlines
are to name a few. The present paper is trying to look into the root causes of the
financial crisis of these airlines.
Keywords: Aviation Industry, Financial Crisis, Airlines
Cite this Article: Baisakhi Debnath, Sushan A Shantharam, Anmisha Reddy
Dwarampudi and Dasari Sri Vidya, A Study on the Causes of Financial Crisis in the
Indian Aviation Industry with Special Reference to – Kingfisher Airlines, Journal of
Management (JOM), 7 (1), 2020, pp. 27–40.
http://www.iaeme.com/JOM/issues.asp?JType=JOM&VType=7&IType=1
http://www.iaeme.com/JOM/index.asp 27 editor@iaeme.comBaisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya
1. INTRODUCTION
Joshi & Desai (2015) pointed out that the Airport Authority of India (AAI) manages in total
122 Airports in the country. It includes International Airports-11, domestic airports-94 and
civil enclaves-28. 70% of the passenger traffic of which Delhi and Mumbai together account
for 50% alone is handled by Top 5 airports in the country Passenger and cargo traffic has
growth at an average of about 9% over the last 10 years.
Over the years the skies of India have hosted numerous airlines however few have been
able to sustain the rough weather. Jet Airways the latest among the lot hurled towards the
crash faster than it was imagined. Jet had no cash and fuel which resulted in its winding up.
The other sectors associated with the Aviation industry are making money with exception
to the Airlines. Cab operators like Ola, Uber are doing well resulting into the government
getting good money in form of taxes. In addition, the lease companies are charging hiked
amount of rent on airport.
The reasons for the non-performance of Airlines could attribute to certain reasons.
1.1. Debt
The amount of debt the Aviation industry is surmountable. According to livemint (2014) the
industry has a debt of 15.83 billion. Knigfisher Airlines alone has a debt of about $ 210
million roughly around INR 14,578 million and Jetairways has a debt of about INR 15,000
Crore, and Air India has a Debt of INR 58,351 Crores to mention a few.
Some of the significant causes for the non-performance and failure of Airlines in India are
Mis-management, stringent aviation rules, FDI (Foreign Direct Investment) rules and
regulations, high aviation turbine fuel prices, rupee depreciation, excessive parking and
landing charges, pilot crunch, aircraft rentals, and higher import duty on aviation turbine fuel.
Australian aviation consultancy CAPA (Center for Asia Pacific Aviation) forecasts that Indian
carriers will lose a collective $550 million to$700 million in the financial year 2020 as
compared to an estimated $1.7 billion loss for the 2019 year ending in March). The existing
infrastructure is unable to support the ambitious expansion plans of the various airlines and
even the county owned Air India was kept for sale for a number of times but sadly it could not
attract any buyers. Despite the number of travellers has gone up many fold over the years, still
the airlines are not able to make profit. Experts often say that a countries development is
based on the improvement of the aviation and the telecom industry. The image of India’s
aviation and telecom industries has one thing in common - the amount of debts both the
sectors are into. The primary reason why these two sectors are failing in India can be
attributed to the multiple instances of regulations changing to favour particular companies
namely Jio getting a free hand at launch and opening up FDI for Jet-Etihad deal are a few
examples which conform to the fact. In addition, the government treats the two sectors as cash
cows like the Spectrum sale of 2016 bringing in more than Rs 65,000 crore as revenue and
aviation turbine fuel being highly taxed and the most expensive in Asia making these two
sectors highly unstable in terms of growth. The government at present has opened the sale of
the part of debt laden Air India to foreign airline. The government has moved about Rs.
30,000 crore of Air India’s debt to as a separate holding company leaving the airline with
roughly another Rs. 30,000 crore of debt according to the sources
2. LITERATURE REVIEW
1. Kumudha & Bhunia (2016) in their study pointed out the paradigm shift of the in the
mind set of the Indian travellers in choosing air travel as compared to other mode of travel
with the change in aviation policies of the government along with the rise in air travel of India
http://www.iaeme.com/JOM/index.asp 28 editor@iaeme.comA Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to –
Kingfisher Airlines
to global standards. They analysed the expectations, satisfaction levels and perceptions of the
customers and pointed out the need of improving customer relationship in retention of
customers and improving customer loyalty. They pointed out the effectiveness of the
customer relationship marketing activities practiced by the airline companies where the
analysis showed that Kingfisher airline passengers were overjoyed and Jet airways passengers
were satisfied.
2. Ravi (2016) in his paper spoke about the recurrence of corporate frauds and failure of
corporate governance in India with reference to the failure of Kingfisher Airlines. He
mentioned that about the corporate legal framework of India on paper which could be
considered to be the level of US Surbanes-Oxley Act. It has been found that collectively the
non-productive assets of Indian public banks have been estimated at $120 billion in 2016.
This is not possible in developed countries and many developing countries and a host of
factors like political nepotism, outright corruption facilitated many questionable practices of
Indian Banking sector. It has been found that in KFA case also the blame game has begun
between ruling party and opposition parties. Banks blame political influence and politicians
blamed the banks for lack of due diligence. The issue is complicated by the fact that many
CEO appointments in banks are normally political appointments. Market watch dogs kept
changing the policies, for example SEBI’s change of policy of conversion of debt to equity by
banks at premium resulted in lending banks paying 61% premium to KFA.
3. Srivastava (2016), in the research critically analysed the factors that lead to the down fall
of the various airlines with major reference to kingfisher which pointed out the kingfisher
lacked strategy for long terms by collaborating with Air Deccan, other reasons could be non-
appointment of CEO for a longer period of time, multiple hopping destinations with non-
profitable routes resulting in delays. In addition to that, in the financial front they were always
at the back-foot with higher cost of training, high cost of maintenance, delayed salary to the
employees, government dues and a hefty operating cost primarily on account of steep
depreciation of Indian Rupee coupled with higher fuel costs which resulted in high
accumulative losses.
4. Choudhuri, Dixit & Tiwari (2015) in their paper broadly discussed about the issues and
challenges faced by aviation industry in India and pointed the various loan defaulters in
aviation industry. The researchers have made a study on various airlines and their financial
non-performance which includes
Spice Jet: The company had a debt of 1738 crore. The reports attributed the failure of the
company to depositing tax deducted in employee’s salary and that the employees were also
not provided form16. The report also stated that a promoter Mr. Maran was planning to
transfer 53.48 % stake in airlines. The company denied any such part of his stake. Sanjiv
Kapoor, COO of the company wrote to the employees “Spice Jet is no Kingfisher” to
contradict such news articles (Narasimhan, 2014). The company has dropped least six
destinations to make its operational performance improve.
Jet Airways: Mr. Naresh Goyal launched Jet Airways in 1993. The company borrowed $800
million to purchase new aircrafts. In 2007 Air Sahara was acquired for Rs1450 crore. The
company started facing financial issues after the acquisition of Air Sahara. The airline began
dismissing its employees, and 1900 employees were retrenched to optimize the operations.
Mehra (2011) pointed out a broad lack of repercussions by the top management level
associated with a poor coordination and communication between the employers and the
employees and an extremely poor HR practices and management in the organisation. The
company registered loses for the consecutive seventh year in FY 2014. It registered loss of
Rs. 3,667 crore which amounted to seven times the loss as compared to the previous year at
Rs. 485.5 crore.
http://www.iaeme.com/JOM/index.asp 29 editor@iaeme.comBaisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya
Kingfisher Airlines: This airline was grounded in October 2012 and the flying permit was
cancelled in December 2012. The court has allowed banks to take holdings of properties as a
recovery of loans. SBI consortium bank took housing property of kingfisher worth Rs 100
crore. Times of India 2015 pointed out an outstanding loan of Rs 6800 crore to banks by
kingfisher airlines. United Bank of India who had a loan of Rs. 350 crore from Vijay Mallya
declared him as a wilful defaulter in 2014.
5. Sambrani (2014), India in his research spoke about how public private partnerships (PPP)
turned out to be the most preferred mode for construction and operations of commercially
viable projects wherein it is almost impossible for the government in the capacity of its own
to bring all the elements of infrastructure together. The paper spoke about the construction of
Greenfield Bangalore International Airport to understand PPP
6. Joshi and Desai (2012) has done a study on the mergers and acquisitions in Aviation
Industry in India and the impact which it creates on operating performance and wealth of
share holders. Their study primarily focussed on operating performance of the companies
before and after acquisition and the reasons the organisations go for such unstable modes of
entry. They have pointed out that main objective behind such mergers and acquisitions were
to ensure their source of supplies and that when one company is lower in their performance
the other can help them out. Few mergers in Indian aviation industry are Kingfisher-Air
Deccan and Jet airways-Air Sahara. Post the merger, these airlines faced huge losses and the
causes can be imparted to overpayment, strategic issues, selecting the targets, personal
motives of executives, integration issues. In addition it was pointed out that the profits of the
company declined in the process and even the wealth of shareholders declined in the process
resulting in no shareholders’ wealth post the mergers.
7. Hooy and Lee (2010) in their research “The determinants of systematic risk exposures of
Airline industry in East Asia” have tried to understand the gap for risk exposures in East Asia
airline industry and by making a panel regression in seven companies in different regions
have tried to identify the gap. They have found out that the risk exposure is high during 2000
dot crisis and not in recent subprime crisis.
8. Distexhe and Perelman (1994) in their research tried to find out the technical efficiency
and productive gains in airline industry. The result showed a large variance from one airline
to the other and the variance is seen in the different time span. However, the study of the
sample airlines showed an improvement in general in the technical efficiency. The results
affirmed the improvement in efficiency of airlines with the increase in competitive
environment. In addition, technological progress, which had been indicated by the positive
shifts in production front, this advantage is confined to airlines operating worldwide.
Furthermore, it was found only a handful airlines obtain productivity gains due to density of
route networks and load factor changes. Thus, the growth in productivity is viewed as the
privilege of airlines that succeed in these different sources of growth.
3. METHODOLOGY OF THE STUDY
3.1. Title of the Study
A study on the causes of financial crisis in the Indian Aviation Industry with special reference
to Kingfisher Airlines
3.2. Research Objective
The objective of the study is to look into the causes of the financial crisis of the Indian
Aviation Industry and its impact on the economy of the country as a whole
http://www.iaeme.com/JOM/index.asp 30 editor@iaeme.comA Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to –
Kingfisher Airlines
3.3. Statement of the Problem
What are the causes of financial crisis and bankruptcy of airlines operating in India?
Methodology
The methodology adopted for the data collection required for this research is the secondary
data.
Tools of data collection
Secondary data
Government Data base
Journal Articles
Trade Journal
Periodical and Book
Newspaper and magazine articles
The main tool used for collecting the data for this research was case studies .The
researcher got quite a few of case studies relating to the Indian aviation industry from google
scholar and emerald.com ..
Sample Size
The sample size of the research study is restricted to 5 companies
Reference period
The research was conducted for the approximately a month during the period of July 2019 to
September 2019
4. DATA ANALYSIS & INTERPRETATION
It has been found that the avaitaion industry in india is booming and has a good growth rate if
we see the statistical data we can know that the growth rate in india is increseing year on year
but yet many airlines in india arent running in profit and majority of them at one point of time
ruled the market but know their existance is next to zero In the graph it can see that the
passenger market in india has a growth rate of 12% year on year where as the intenational has
growth rate of 6.5% clearly we can say that avaitation is good bussines to be in but yet many
companies are failling to go ahead with the business succcessfully, the reasons for which are
discussed in the figures and charts below
Growth
international cargo
growth
international passengers
domestic passengers
0% 2% 4% 6% 8% 10% 12% 14%
Figure 1 Growth of Aviation Industry
http://www.iaeme.com/JOM/index.asp 31 editor@iaeme.comBaisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya
45
40
35
30
Indigo
25
Jet airways
20
spice jet
15 Air India
10
5
0
2014 2015 2016 2017 2018
Figure 2 Figure showing India’s biggest airlines and their market share:
From the table, it has been found that the highest market share of airline between the years
2014 – 2018 is consistently maintained by Indigo followed by Jet Airways
4.1. Shareholding
Private promoters hold a 74% stake in Bangalore International Airport while the Government
holds the remaining 26%.
The Shareholding structure of BIAL is as follows:
1. Siemens Project Ventures, Germany: 40%
2. Unique–Zurich Airport, Switzerland: 17%
3. Larsen & Toubro, India: 17%
4. Airports Authority of India: 13%
5. KSIIDC, Government of Karnataka: 13%
Shareholding
Siemens Project Ventures,
Germany
Unique –Zurich Airport,
Switzerland
Larsen & Toubro, India
Airports Authority of India
KSIIDC, Government of
Karnataka
Figure 3
http://www.iaeme.com/JOM/index.asp 32 editor@iaeme.comA Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to –
Kingfisher Airlines
It can be seen from the above Pie Chart that private promoters such as Siemen project
ventures, Larsen and turbo, unique- Zurich airport, holds 74% of stake and Government of
India holds 26% of stake in Bangalore international airport.
Siemen project venture, Germany hold maximum amount of stake i.e. 40% followed by
which Unique-Zurich airport and Larsen & Toubro, It holds17% stake from Indian
government and The Airport Authority of India holds 13% and KSIIDC, government of
Karnataka holds 13% of stake.
Indigo
Air Asia
ST debt/total debt
LT debt /total debt
Spice jet
Jet airways
0 20 40 60 80 100 120
Figure 4 Figure showing Financial Risk Proportion of 4 different airlines
From the figure it can be said that Jet airways has the highest financial risk proportion. Its
proportion of long term and short term debt is (1.32:1)
Table 1 Airline Management’s Perception based on Customer relationship management practices are:
Mean scores of the CRM Air India Jet Airways Kingfisher
strategies
Customer Acquisition 3.45 3.91 3.73
Strategy
Customer Satisfaction 3.50 4.21 3.79
Strategy
Customer Retention Strategy 3.50 2.33 3.33
Customer Loyalty Strategy 4.00 5.00 3.00
From the table it can be seen that jet airways has the best acquisition strategy, customer
satisfaction strategy, and customer loyalty strategy compared to Air India and Kingfisher, but
Air India has highest customer retention strategy, when compared to Jet airways and
Kingfisher.
Table 2 Name of the major players in the Aviation Industry and their market shares in the year 2008-2009
Name of the Players Market Share
Kingfisher Airlines and Kingfisher Red (Previously Air Deccan) 28%
Jet Airways and Jet Lite ( Previously Air Sahara) 25%
Air India & Indian ( Previously Indian Airlines) 16%
Indigo 14%
Spice Jet 12%
Go Air 3%
http://www.iaeme.com/JOM/index.asp 33 editor@iaeme.comBaisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya
From the table it is seen that point of time that KFA had the majority market share with
28% and then followed by Jet Airways and Jet Lite with 25% followed by Air India (16%)
IndiGo (14%) Spice-jet (12%) with GoAir bottoming the list with 3% market share. However
if we see the current scenario the top two airways aren’t operating in India and have ceased
operating with a lot of controversies. In FY 2018-19 Indigo has the largest market share on
domestic routes with 37.9% and Air India has Largest market shares on international routes .
If it is seen that what went wrong with kingfisher airlines it started as it was a dream of
Mr.Mallya he wanted to redefine the economy class in India by providing one of a kind
experience to it passenger
KFA had started offering first class and in-flight entertainment on domestic routes. There
were around 122 airports in the country, which include 11 International Airports, 94 domestic
airports and 28 civil enclaves. In the present scenario around 12 domestic airlines and above
60 international airlines are operating in India. Aviation Industry in India holds around 69%
of the total share of the airlines traffic in the region of South Asia there by making India to
drive more investors in the airline industry. Some industry experts expect a growth rate of
25% year on year in India. Air India, Indian Airlines, Jet Airways and Kingfisher Airlines
have reported large losses since 2006, due to high aviation turbine fuel prices, rising labour
costs and shortage of skilled labor, rapid fleet expansion, and intense price competition
General Airline operating expenses landing and Depriciation and
associated amortizaion
administrative and airport charges 7%
others 4%
12%
Maintenance
and overhaul
10%
Ticketin,sales
promotion other
16% 7%
passenger Fuel and oil
service 12%
11% station
expense
11%
Enrroute facility
charges Flight crew
3% 7%
Figure 5 Airline Operating Expenses
The Pie Chart shows the primary expenses which can be expected while starting an
Airline. The chart shows majority of the expenses on Ticket And Sales Promotion (17%)
followed by expenses are on Fuel and Oil (12%) which are the two primary expense for any
airline. 11% of the expenses for Services provided to the passenger and 7% expense on
depreciation. Hence it can be found out Airlines operating expenses are more than their
income .These could be some of the reasons why majority of the airlines cease to operate.
http://www.iaeme.com/JOM/index.asp 34 editor@iaeme.comA Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to –
Kingfisher Airlines
Table 3 Table showing the Financial Performance of KFA from 2004-15 – 2008-09
Kingfisher Airlines 2004-05 2005-06 2006-07 2007-08 2008-09
Operating Profit Margin 10.2% -1.3% -21.9% -51.5% -26.5%
Gross Operating Margin -4% -24.6% -21% -47.8% -33.9%
Net Profit Margin -6.4% -27.5% -23.6 % -13.1% -30.5%
Return on Capital 15.4% -9.8% 7.5% -19.6% -24.4%
Employed
Return on Net Worth -143% -347.5% -287.4% -129.8% -809%
Debt-Equity Ratio 20.8 4.6 6.3 6.4 4.7
EPS -63.0 -347.5 -31.0 -13.9 -118.5
P/E -1.9 -0.3 -4.6 -9.6 -0.4
The data reveals the status of KFA year wise in terms of its financial performance and
health. The operating profit in the year 2004-05 was 10.2% which consistently reduced at the
steady rates and became negative over the years and at the end of 2008-09 year it had a
negative 26.5% whereas gross profit margin from the first was stood at negative 4% and went
worst over the years with -33.9% at the year of 2008-09 . It can be seen that even Net profit
and Return on capital employed and return on net worth and debt equity ratio and earnings per
share were in negative from the beginning. Over the years, Mr. Mallya had made his presence
in various companies like Berger paints, Best and Crompton, Mangalore Chemicals and
Fertilizers and Asian Age to name a few. All these companies including KFA was owned by
United Breweries Ltd, Apart from these, Mr.Mallya had also bought an IPL team and even
had bought a Formula 1 team and was the one who hosted horse race in Bangalore, India
while KFA was undergoing losses sources say that Mr.Mallya went spending flamboyantly.
He bought a few antics of Tipu Sultan & Mahatma Gandhi for 1.8 million Dollars Thus,
experts say the money which belonged to KFA or rather Vijay Mallya could have invested
more judiciously on the development of KFA
Table 4 Bank Loans to Kingfisher Airlines from 2008-2010
http://www.iaeme.com/JOM/index.asp 35 editor@iaeme.comBaisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya
Below are the list of the bank which have given loan to KFA. State Bank of India has
given 1600 crores in exchange it took the security of KFA Trademark and goodwill and IDBI
Bank had given 800 crores and bank of india had given 30 crores and Punjab national bank
had given 800 crores and united bank of india had given 430 crores and central bank had
given 410 crores and uco bank had given 320 crores and corporation band given 310 crores
and State bank of Mysore now state of India had given 150 crores as loan and various other
banks also gave loans to KFA but in return had taken their trademark into security. indian
overseas bank was the only bank which had taken two helicopters as a security and Punjab
and Sindh bank had taken the kingfisher house located in Mumbai as it security . Many
experts felt that though KFA didn’t comply to get loan requirement but still managed to get
the loan which was shock for many industry experts Mr.Mallya approached a number of
banks between 2008 to 2010 and he got a huge amount of loan from many banks but the most
shocking part was these bank took the brand value and seven trademarks as collateral which
included Fly Kingfisher , Flying Models of Kingfisher, Fly the Good Times, Funliner and
Kingfisher, which were valued by global consultancy firm Grant &Thronton at ₹ 3,008 crores
($601 million) .
Many experts opined this incident as a result value of the firm today stands at 6 crores.
KFA pledged its 1st brand to the bank at 4100 crores and a personal guarantee was given by
Mr.Mallya for 248.07 crores and a corporate guarantee for 1601.13 crores .
Below is shown the share prices of KFA. The table shows consistent downfall in the share
prices of Kingfisher Airlines over the year between 2006- 2014
Table 5 Share prices of KFA from 2006-2014
Share Prices of KFA
Sr Year High Low
1 2006 140.70 (28 Dec, 2006) 68.00 (19 July 2006)
2 2007 316.60 (18 Dec, 2007) 91.30 (05 April 2007)
3 2008 284.50 (01 Jan 2008) 29.10 (17 Dec, 2008)
4 2009 68.75 (02 Jun 2009) 49.60 (06 Nov 2009)
5 2010 86.80 (10 Nov 2010) 41.55 (20 May 2010)
6 2011 66.85 ( 03 Jan 2011) 19.65 (11 Nov 2011)
7 2012 29.15 (07 Feb 2012) 7.40 (10 Aug 2012)
8 2013 15.16 (02 Jan 2013) 3.88 (16 Dec 2013)
9 2014 3.46 (02 Jun 2014) 1.28 (27 Nov 2014)
10 1.34 (01 Dec 2014) No transactions after 1 Dec 2014
It can be found from the table that highest market share of KFA was on 28th December,
2006 the lowest being 27th November 2014 post which from 1st December it has ceased to
operate
Table 6 List of Wilfull Defaulters by State Bank of India (Top-5)
No Name of Wilful Defaulters Amount (in Crores) State
1 Kingfisher Airlines 1600 Karnataka
2. Agnite Education Ltd 315.45 Tamilnadu
3. Shreem Corporation Limited 283.08 Maharashtra
4. First Leasing Company of india Ltd 235.29 Tamilnadu
5. Teledata Mareen Solutions Pvt Ltd 166.85 Tamilnadu
State Bank of India declared Vijay Mallya as a wilful defaulter for the bank and was the
first person on the list of State Bank on India wilful defaulter in the year 2015 to State Bank
http://www.iaeme.com/JOM/index.asp 36 editor@iaeme.comA Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to –
Kingfisher Airlines
of India alone. The airline has not flown since 2012 and has dues of over Rs.7000 to a
consortium of 17 banks. The banks are trying to recover the loans by selling the securities
pledged by Kingfisher. SBI’s share has been estimated to the largest with around Rs. 1600
crores
Table 7 Bank loans to kingfisher airlines (2008-2010)
Serial No. Bank Amount in Amount in Year Collateral
Indian US $ Security
Rupees (₹ )
Crores
1 State Bank of India 1,600 $212 million 2010 Trademarks and
Goodwill
2 IDBI Bank 800 $106 million 2009 Trademarks
3 Punjab National Bank 800 $106 million 2010 Trademarks
4 Bank of India 650 $130 million 2010 Trademarks
5 Bank of Baroda 550 $110 million 2010 Trademarks
6 United bank of India 430 $86 million 2010 Trade marks
7 Central Bank 410 $82 million 2010 Sales proceeds
and lease rents
to be deposited
an escrow
account
8 UCO Bank 320 $64 million 2010 Trade marks
9 Corporation Bank 310 $62 million Trade marks
10 State Bank of Mysore 150 $30 million Trade marks
11 Indian Overseas Bank 140 $28 million 2008 Two Helicopters
12 Federal Bank 90 $18 million Trade marks
13 Punjab and Sindh Bank 60 $12 million 2010 Kingfisher
House, Mumbai
14 Axis Bank 60 $12 million 2010 Trade marks
15 Three other banks (Vijaya 603 $120 million 2010 Trade marks
Bank and others)
SBI is the bank that lended the highest amount to Kingfisher Airlines. It has lended 1600
crores in the year 2010, followed by IDBI and PNB who have lended 800 crores each.
Trademarks and Goodwill are kept with bank as collateral security.
Table 8 Details from the books of kingfisher airlines
Mar’11 Mar’10 Mar’9 Mar’8 Mar’7 Mar’6 Mar’5
Unsecured 1872.55 3080.17 3043.04 342 200 3.5 125.06
Loans
Total Debt 7057.08 7922.6 5665.56 934.38 916.71 451.66 284.48
Total 4105.89 4024.15 3540.22 1133.26 1301.41 657.79 298.14
Liabilities
Loans 5380.19 4504.31 3640.42 832.49 149.77 232.03 47.28
&Adv.
CA ,Loans 6260.73 5298.15 4189.37 1188.42 1063.68 558.83 174.88
& Adv.
Book -70.46 -150.54 -83.88 13.9 28.4 22.83 43.96
Value(Rs)
As we see in the table, the debts of KFA have been only been increasing and the book
value of the airlines is decreasing since 2005
http://www.iaeme.com/JOM/index.asp 37 editor@iaeme.comBaisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya
5. LIMITATIONS OF STUDY
Some of the Limitations faced by the researchers while doing research are as follows:
Lack of data regarding the financial crises of Indian Aviation industry
Lot of time taken while collecting secondary data
Less information was provided on published research
Not having a definite data
Concern that the focus is either still too broad or narrow
Time constrains
Conflicts within the group members
Was a very challenging task to collect the data
Not having the idea of the outlook of the research
Lack of confidence to take new research paper
Lack of Access Research
6. FUTURE SCOPE OF STUDY
Government policies affecting the functioning of aviation industry.
Rules and regulations set up by DGCA( Directorate general of civil aviation)
Air India’s financial crisis
Reason for closure of many airways in India
The problems of FDI in aviation industry
Kingfisher airlines acquiring Air Deccan
Spice Jet’s escape from the deaths
How low cost operators are dominating high cost operators.( For example Indigo
dominating Jet Airways)
7. DISCUSSION & CONCLUSION
From the above interpretation certain challenges faced by airline industry can pointed out
If it is seen that what went wrong with kingfisher airlines it started as it was a dream of
Mr. Mallya he wanted to redefine the economy class in India by providing one of a kind
experience to it passenger
KFA had started offering first class and in-flight entertainment on domestic routes. There
were around 122 airports in the country, which include 11 International Airports, 94 domestic
airports and 28 civil enclaves. In the present scenario around 12 domestic airlines and above
60 international airlines are operating in India. Aviation Industry in India holds around 69%
of the total share of the airlines traffic in the region of South Asia there by making India to
drive more investors in the airline industry. Some industry experts expect a growth rate of
25% year on year in India. Air India, Indian Airlines, Jet Airways and Kingfisher Airlines
have reported large losses since 2006, due to high aviation turbine fuel prices, rising labour
costs and shortage of skilled labor, rapid fleet expansion, and intense price competition
Challenges faced by Aviation Industry at the present moment
High airport charges: It contributes 20% for long distance and 30% for short
distance air tickets (Gopinath, 2014)
http://www.iaeme.com/JOM/index.asp 38 editor@iaeme.comA Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to –
Kingfisher Airlines
High Maintenance Charges: The maintenance, repair and overhaul (MRO) charges
are extremely high resulting in the airlines to travel Jordon, Singapore and Abu Dhabi
for MRO. This increased MRO is passed on the passengers.
Low customer base: The customer base is not expanding rapidly to enhance the
operational profits.
Poor regulation: The industry doesn’t provide level playing field for a new comers due to
poor regulation. The monopoly of public sector companies has now been replaced by cartel
formation of private companies. The procedures are complex and cumbersome.
Poor Status of Airports: The government has not allowed competition in airports. Many
international destinations have followed policy of more than one airport. London has five,
New York has four, Hong Kong has four more international airports within 150 km radius.
On the other hand, in India, Hyderabad and Bangalore airports have been closed. 75% of
traffic comes from four major airports controlled by two firms (Gopinath, 2014). Financial
stress may affect the safety of passengers, as airlines lower their maintenance budgets. The
audit report of DDGCA has highlighted lack of spare parts as serious lacunae for maintenance
of the aircrafts comprising the safety of the passengers. It has been that airlines are misusing
category C defect, where an aircraft can fly with a defect for 10 days. Ranganathan
commented that the airlines remove the defective part on tenth day and put it in some other
flight. The defective part is rolled over again to some other aircraft and this cycle continues
(live mint, 2014). High price of ATF as compared to prices at international level: ATF prices
in India are highest globally and 60-70% higher than neighboring hub like Kuala Lumpur,
Bangkok, Hong Kong and Singapore (Sinha, 2014).
Value added Tax on ATF significantly affects the operating profits. Rupee depreciation
affects the airline industry badly. Complex tax structure for ATF: The pricing of ATF does
not reflect the international crude oil prices. Oil marketing companies fix the price by adding
many other charges. The public sector oil companies seem to have made a cartel to fix the
rates for airline companies, by abusing their monopoly.
Thus in present paper the researchers have discussed about how the companies such as
kingfisher, air India, jet airways, etc who once were one of the top share holders of the market
in airlines industry fall apart and had to cease their operation due to less profits which
couldn’t meet up to their expenses and couldn’t repay the loans to the banks because of which
the banks in the country had to face huge crisis.
Kingfisher Airlines has been used as a special reference where it has been pointed out that
the total amount borrowed by kingfisher airlines is 66670 crores of Indian rupees and highest
amount borrowed by kingfisher was from SBI i.e. 1600 crores in Indian currency.
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