Chairman of Kingfisher Airlines, Vijay Mallya has been an example of one should not run a business. With few services left with the company and shareholders barking at him, however, Mallya still is not in a position to give in.
It seems that Mallya entered into the business for the glamour it brought, rather from having real understanding of the industry. In the U. S., the last 30 years have witnessed nothing less than 50 airline bankruptcies. With high fuel prices and related costs, success in aviation industry in India is not an easy achievement as well. In the country there have been at least 10 failures since the opening of aviation to the private sector in the 1990s.
Mallya might not have done research on it before diversifying his business into an unrelated sector. He might have taken up the challenge thinking of repeating his success, which he enjoyed in his liquor business. Mallya did create the best airline brand in Kingfisher. Passengers were opting for Kingfisher than Air India or Jet, as Mallya had introduced a no-expenses-spared approach to Kingfisher First Class. But, then he bought Air Deccan at a huge premium, which stood contradictory to the cut-rate carriers of the company.
And at the worst, he staked entire of his liquor business to save his sinking airline. Today, he is having talks with Diageo to sell a stake in United Spirits, since he had pledged too much of his liquor business and his personal assets to keep Kingfisher flying. He told his shareholders that he is in talks with foreign airlines to sell a stake. However, the point to notice here is why any foreign airline would want to buy a stake in such a sinking company.
Attacks on the KFA
Many shareholders were critical of how the company’s debt had spiraled out of control and the fact that the management had not taken active steps to prevent it. Some of them called the management ineffective and asked for a managerial change. They also added that if it is not fulfilled, the government’s move to allow foreign direct investment into the civil aviation sector wouldn’t be of much help to the company.
According to the report came in Business Standard, some of the shareholders of the company opined that the dismal stature of the company has affected the UB Group. And yet others were sad that the employees of the airlines were not paid their salaries since the last few months.
It is reported that Kingfisher Airlines continues to default on its service tax outstandings, amounting of over 60 crore, and the government’s move to allow FDI in civil aviation sector only offers a ray of hope for the company to recover the dues, as the department has frozen most of the accounts of the ailing airlines. The company has failed depositing the service tax collected from the passengers with the department since November 2011 on a regular basis.
Presently the Airlines is having 7,000 crore in accumulated debt in 17 banks and around an equal amount of losses. It has lost about four slots in the Mumbai airport. Kingfisher currently operates only around 80 services a day with just 15 operational aircrafts, which used to operate 360 flights a day, Business Standard reports.
As the shares have started showing a better status in the market, Mallya is setting forth to counter the shareholder attacks. “I am a businessman and I will sell businesses at the right price,” he said to Business Standard.
At Kingfishers Airlines’ annual general meeting (AGM), the Chairman assured the angry shareholders that he would get the company back in shape. Mallya told the shareholders while the situation was tough, all efforts to recapitalize the company had been made. He also criticized media being negative about his shares.
Deccan Herald reports that, in his initial remarks at the AGM meet, Mallya said that KFA has a fleet of 12 aircraft that fly 40 destinations. He added that during the past eight months of this fiscal year, the promoters of the company have infused 1,154 crore into it, proving that the management is committed to the welfare of the company. And in his concluding words he said we need God’s blessing and luck to save this company.