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The Fall of Kingfisher


What do you think makes a company successful? According to statistics, almost half the number of new companies launched every year, go out of business within four years.

Can you imagine that?

The odds of making a business successful are just about half!

It is hard to pinpoint the exact decisions which cause the failure of a company. It is possible however, in retrospect, to trace some of the root causes or managerial decisions, which led to the eventual demise of the company.

I am sure you have all heard about Kingfisher Airlines, haven’t you?

The very illustrious business tycoon, Vijay Mallya launched this high-end airline company in 2003. In the last decade or so, Kingfisher Airline was full of potential, poised on the brink of eternal glory and profit. Yet, today, it can be barely be seen under mountains of metaphorical ruins and shambles.

What went wrong?

That, my dear friends, is what I am here to tell you.

The fact that Kingfisher Airline met an ignominious end is common knowledge. However, not a lot of people are familiar with the story of the once mighty airline company. Such a company deserves to have its story told, even if it is used as a cautionary tale for other upcoming airline companies.

Let’s get started then, shall we?

When Kingfisher was first established in 2003 under Chairman Vijay Mallya, the country had high expectations from the company. Its parent company United Breweries, had a stellar track record and people expected no less from its fledgling.

Sadly, reality was slightly different. The universe had other plans for Kingfisher. The company started its operations in 2005 with four new Airbus carriers. The first flight was between Mumbai and Delhi. As for the international operations, that commenced in 2008, with a direct flight between Bengaluru and London.

The number of profit making days seen by the company can probably be counted on one’s fingers. There was a steady stream of losses reported right from the beginning. In all fairness, Kingfisher tried out a lot of different approaches. In retrospect, perhaps this was where their problem lay.

Kingfisher was initially launched primarily as a no-frills economy airline. Barely a year later, the airline suddenly changed track and shifted to luxury. Soon after that, in 2007, Kingfisher acquired the Bangalore based low-cost airline Air Deccan. This is the deal that is ultimately believed to have brought the company down.

I imagine if Vijay Mallya could have gone back in time, he would have not gone through with the acquisition of the crisis-ridden Air Deccan.

A lot of experts are of the opinion that the decision to merge with Air Deccan was largely driven by the desire to launch international operations in 2008. After the merger, Kingfisher had a fleet of over 71 aircrafts, with a combined experience of five years in the domestic market. These facts enabled the company to meet the requirements for international flying.

Let this be a lesson, dear friends, in the importance of keeping one’s priorities straight, and not rushing into important decisions without due diligence.

The initial plan with the merger was to save about Rs. 300 crore. Instead, Kingfisher ended up spending almost Rs. 500 crore on a company which already had losses of over Rs. 550 crore. In fact, over the next three years, Kingfisher accrued a loss of over Rs. 1,000 crore!

It’s hard to imagine, isn’t it?

The company never really managed to recover the losses. In fact, the amount of debt kept increasing each year it remained in operation.

In all fairness, the circumstances surrounding these decisions did not particularly help.

Kingfisher’s decision to acquire Air Deccan was closely followed by Jet’s acquisition of Air Sahara, which led to cutthroat competition to establish the leader and the biggest airline company in India. This competition led to increase in the prices of jet fuel to almost $150. When you throw in the 2008 recession which hit markets all around the world, Kingfisher had little chance of recovering.

In fact, according to an industry analyst, “Long term strategy and laser focus is essential when it comes to running an airline business. Frequent change in focus has not helped the airline, which has also been badly hit by external factors.”

It all went downhill from there, dear friends.

In 2011, Mallya decided to exit the low cost business. This decision came a little too late however, as the company was already facing a debt of about Rs. 6,500 crore by then.

The situation went from bad to worse.

It’s almost hard to imagine, isn’t it?

By 2012, the employees started going on strike for non-payment of salaries. In the face of the ever-increasing debt of Rs. 7,000 crore, the company suspended all international operations. They also reduced their domestic operations significantly.

You see, earlier the company was facing a smaller debt while bringing in a significant amount of revenue. However, because of the changes in strategy and direction of the company, the cost of operation kept increasing.

But now, because it was so expensive to continue the same level of operations, Kingfisher cut back drastically on the number of flights it operated. While this did not add to the increasing cost, it reduced the revenue earned by the company.

Have you ever seen one of those cartoons where the protagonist is running down the mountain slope being chased by a snowball which keeps getting bigger and bigger? 

Well, that is exactly what happened to Kingfisher.

Eventually, the snowball of debt reached such an unimaginable size, the company was forced to declare bankruptcy. Kingfisher was declared a non-performing asset by the consortium of banks headed by the State Bank of India (SBI).

The inevitable end arrived by the end of 2012, when the Directorate General of Civil Aviation suspended the company’s license.

It’s never a very happy moment when you hear of the effective demise of a once potential-filled company, is it?

In fact, in 2014, Kingfisher was declared to be the top non-performing asset in the country, having defaulted on loans of over Rs. 4000 crore. The prestigious Kingfisher House, valued at over Rs. 100 crore, was seized by a consortium of 17 banks headed by SBI, in an effort to recover some of the assets.

Superstitious individuals can argue that the odds were never in the company’s favour, or that the universe conspired to throw lightning bolts in the company’s path.

There is some validity in this point of view in the sense we have to accept that there are always forces acting around us which we cannot explain and which are completely out of our control. In spite of that, it is possible to focus on the variables in our control and still come out on top of the odds.

Kingfisher, as a company, was riddled with problems from the very onset. The utter lack in focus and a clear foresight for the company was the main problem. The acquisition of the problem-riddled Air Deccan did not help the already dire situation. On top of that, the company had to battle with inadequate funds for management and ever-increasing cost of operation.

Kingfisher was completely eviscerated and reabsorbed by the earth. Vijay Mallya fled to London in the face of criminal charges for the non-payment of the staggering amount of debt the company accumulated. “I am in forced exile with no plans to return to India,” said Mallya.

Let this be a lesson, a cautionary tale for any potential entrepreneurs out there. Let the story of Kingfisher be an example of what not to do. Let us remember about the company and learn something from its tumultuous journey.

Happy investing!