THE CRISIS IN KINGFISHER AIRLINES

 THE  suicide of Sushmita, 45 year old wife of Manas Chakravarthy who is a technician in the beleaguered Kingfisher company highlights the individual sufferings behind the down fall of Kingfisher Airlines. Sushmita’s husband was not getting pay for the last several months. Any delay in receiving pay might upset everything in a lower middle class family living in a city. The monthly expenses like rent, children’s fees, food and other day-to-day expenses are unavoidable and  cannot be put off. So the hardships of a family without pay for months on end can be imagined.

There are about 4000 employees in the Kingfisher Airlines of which half the employees have received pay until March this year while others have not received pay since January this year. It also means that 4000 families in India are in anguish and face uncertain future by the financial troubles of Kingfisher Airlines. Now as an interim relief the director General of civil aviation has directed the Management to disburse the employees’ pay arrears first, before doing anything.

If it was only a question of disbursing pay to the employees the Kingfisher has no problem at all. But the company is at default in  all of its payments.

 The company’s debt to various lenders including several Banks accumulated to 8000 crore in 2010 and when the lenders were closing in on the company it requested for a debt restructuring. The Reserve Bank gave permission and as per its formula about 2000 crore worth of shares were transferred in the lenders’ name while agreeing to pay  the balance  in 9 years with reduced interest rates.  However the yearly installments since 2010 are yet to be paid.


The Bharat Petroleum and Hindustan Petroleum are after the company to clear their arrears of cost of fuel supplied. This may run in to hundreds of Crores.

 King fisher had taken 4 Air bus on rental basis from Aviation service and its rent is in arrears and the matter is in the court.

 Similarly the Airport rental charges  for Airport authority of India are in arrears which might amount to nearly 250 crores.

 The income tax deducted from the  pay of employees have not remitted.

Thus, it is unpaid bills all around the company and any income  received  is deviated to pay the urgent bills. As if all those are not enough, the Pilots also began to strike work for want of enhanced pay and almost all planes grounded for sometime. The decreasing income and piling up liabilities have made the company almost bankrupt and it is expecting  help from the Government or from other sources..


The Kingfisher  Air lines is part of U B  Group of companies (United breweries Group) owned by Vijay Mallya with an annual sales of $ 4Billion. The spirit is the traditional production company of Mallya family and when Mallya took charge he expanded to other areas like Electrical,  chemical aviation etc. and of all those Companies Kingfisher is the lone company making loss year after year The company became a veritable ‘black sheep’ of the Group,  threatening the very existence of the Group itself.


 Mallya started the Kingfisher company in 2005 when the U B Group was at its height. He fancied to build up a world-class Airlines for India and true to his wishes the Kingfisher  provided best facilities to its passengers. However to remain in the business it had  to be profitable also. In its entire life Kingfisher never made a profit.

The  Kingfisher Airlines in its hurry to expand, acquired the loss making Deccan Airlines and it only added the woes of the company instead of making any progress.

 The Airlines have their unique problems. Mallya did not study enough about it before jumping in to the business. He was in an exuberant mood at that time in the growth and reach of U B Group.

There are several factors to make Air line business a losing game in India. After decontrol of Airlines by the Government there is fierce competition in the business. Earlier the Government decided the Ticket charges and schedules. When the Government left the Airlines to the market forces, competition  increased and Airlines were forced to reduce fare and increase facilities and performance which dwindled the income considerably and increased expenses. Although fares were slashed there was not corresponding increase in the number of passengers either.

The fuel charges and other operating expenses are another issue. The price of fuel has been steadily increasing for the last few years. Similarly all other sundry expenses including labour charges were also on the increase. In a nutshell the expenses increased and income dwindled making the business totally unprofitable.


Now the Kingfisher is finding itself with few options. The banks are unlikely to give more  money for the King fisher as they have already burned their fingers in dealing with it and are looking out ways to get back the money advanced.

 The only entity that can help the Airline is the Government. It cannot extend an outright help to a private company as it would not be a politically wise decision since the parties opposing the Government might use the opportunity to blame the Government as partisan or crony capitalist.  Besides, it would make the Government incumbent upon saving other ailing Airlines also.

There is precedent of U.S.Government helping  ‘General Motors’ and ’Chrysler’ from lock out by sanctioning funds but the Air line business is not like car making business. The fundamental problems of the Airline business are still there in India and without finding remedy for them an interim help will eventually become a futile exercise

At present the Kingfisher Airlines is under lockout until October 15th. Meanwhile the Director General of civil aviation has served a notice to the Airlines to show-cause as to why its licence should not be cancelled in the light of its failure to conduct services properly. The company shows a brave face saying that it would reply the notice with its plans for the future.

Mallya is exploring all possibilities to save the company including new investors especially in the light  of the cabinet decision increasing the foreign participation in Airlines to 49%. The Government will also extend help within its limits. No one wants to see the company locked out.

 The company needs to be saved any way at least for the sake of its thousands of employees. And  also not to happen another Sushmitha incident.


Latest News. The Director General  of civil aviation  has suspended Kingfisher Airlines' licence and the planes are all grounded now. There is nothing more catastrophic to happen for Kingfisher and its hapless employees at the moment.

 Let us hope that we have not heard  the last of it yet and Kingfisher would resurrect from its ashes like the legendary phoenix bird.




Image courtesy: Google