History of Kingfisher Airlines

In September 2011, the chairman and managing director of Kingfisher Airlines made following disclosure to the Bombay Stock Exchange(BSE); "The Company has incurred substantial losses and its net worth has been eroded. However, having regard to improvement in the economic sentiment, rationalization measures adopted by the Company, fleet recovery and the implementation of the debt recast package with the lenders and promoters including conversion of debt into share capital, these interim financial statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities"[17] This filing was widely covered by Indian and international print and electronic media and analysts. It was stated by analysts and media that the company needed capital infusion to remain viable and this has pushed shares to near historic lows.[18] Kingfisher Airlines Lenders later stated that they consider that company is viable.[19] On 15 November 2011 the airline released poor financial results, indicating that it was "drowning in high-interest debt and losing money". Mallya indicated that his solution was for the government to reduce fuel and other taxes. The government was engaged in assessing whether to bail out the company and other airlines or let market forces determine which ones survive.[20]

Kingfisher Airlines had not paid some bankers (Lenders) as per the Debt Recast Package (DRP) with lending banks. Till the end of December 2011, the arrears were estimated to be ₹260 crore (US$36 million) to ₹280 crore (US$39 million). Lenders hence had told Kingfisher Airlines to clear its dues before they can release any more money sought by the Airline. Ravi Nedungadi, chief financial officer of UB Group however said that the arrears were ₹180 crore (US$25 million).[30] If arrears were not paid in time (December 2011); Kingfisher Airlines would automatically have been treated as NPA, (Non-performing asset).[31] On the last working day of the third quarter of financial year 2011–2012, Kingfisher Airlines made one month interest amount to the banks; thus saving the account from becoming a non-performing asset.[32]

State Bank of India (SBI) on 5 January 2012 declared Kingfisher Airlines a non-performing asset. SBI is the largest creditor and leader of the consortium of banks in the DRP (Debt Recast Package) and has an exposure of ₹14,578 million (US$200 million).[33] By February 2012, Kingfisher has been declared a non-performing asset by the following banks;[34][35]

• State Bank of India(SBI)
• Bank of Baroda
• Punjab National Bank(PNB)
• IDBI Bank(IDBI)
• Central Bank of India
• Bank of India(BOI)
• Corporation Bank

Since 2008, it has been reported that Kingfisher Airlines has been unable to pay the aircraft lease rentals on time. Kingfisher Airlines has grounded 15 out of 66 aircraft in its fleet as it was unable to meet the maintenance and overhaul expenses.[36]

• GECAS: In November 2008, GE Commercial Aviation Services (GECAS) threatened to repossess four leased planes in lieu of default. Kingfisher Airlines initially denied that it missed the payments.[37][38] GECAS had filed a complaint with DGCA saying Kingfisher had defaulted on rentals for four Airbus A320 aircraft, and sought repossession of the planes.[39] In January 2009, The Karnataka High Court rejected petition by Kingfisher Airlines to restrain GECAS from taking any step to deregister and repossess the 04 aircraft in dispute. As a result, Kingfisher had to return the A320 aircraft to GECAS.[40]
• DVB: In July 2010, DVB Aviation Finance Asia Ltd (DVB) (a lessor from Singapore), sued Kingfisher Airlines for lease rental default. Case was filed in a United Kingdom court on 16 July 2010 after Kingfisher did not pay for three-month lease rental for Airbus A320 aircraft it leased from DVB.[41]
• Hindustan Petroleum Corporation Limited (HPCL): In July 2011, HPCL stopped the fuel (ATF) supplies for about two hours to Kingfisher Airlines owing to the non-payment of dues. The situation was later resolved by Kingfisher ex-chairman Vijay Mallya meeting the Central Board of Direct Taxes (CBDT) chairman to unfreeze some A/C's.[42] In the past several years, Kingfisher Airlines has had trouble paying their fuel bills.
• Bharat Petroleum Corporation(BPCL) in 2009 had filed a case against Kingfisher Airlines for non-payment of dues. The High court ordered that the entire amount (₹2.45 billion (US$34 million)) had to be paid by November 2010 and the airline paid it in instalments.[43]

Economy class meal on board a Kingfisher Airlines domestic flight

Ever since the airline commenced operations in 2005, it has been reporting losses. After acquiring Air Deccan, Kingfisher suffered a loss of over ₹10 billion (US$140 million) for three consecutive years. By early 2012, the airline accumulated losses of over ₹70 billion (US$980 million) with half of its fleet grounded and several members of its staff going on strike. Kingfisher's position in top Indian airlines on the basis of market share had slipped to last from 2 because of the crisis. In December 2011, for the second time in two months, Kingfisher's bank accounts were frozen by the Mumbai Income Tax department for non-payment of dues. Kingfisher Airlines owes ₹70 crore (US$9.8 million) to the service tax department.[44] Indian tax body also stated that Kingfisher Airlines is delinquent[45]

As a response, Vijay Mallya called on the CBDT chairman and offered to pay up the dues by 13 December 2011.[46] Kingfisher bank accounts were unfrozen on 14 December 2011.[47] Due to non-payment, several Kingfisher's vendors had filed winding up petition with the High Court. As of November 2011, a winding up petition of seven creditors was pending before the Bangalore High Court.[48] In the past Lufthansa Technik & Bharat Petroleum Corporation Limited (BPCL) had also filed winding up petition against Kingfisher Airlines[49] On 1 January 2013, the airline's flying permit lapsed after it missed the deadline for renewal.[50]

During late February 2012, Kingfisher Airlines started to sink into a fresh crisis. Several flights were cancelled and aircraft were grounded. The airline claimed that the disruptions will continue for four days due to unexpected events including bird strikes which rendered aircraft out of service. The airline shut down most international short-haul operations and also temporarily closed bookings. Out of the 64 aircraft, only 22 were known to be operational by 20 February. With this, Kingfisher's market share clearly dropped to 11.3%.[51] The cancellation of the flights was accompanied by a 13.5% drop in the stocks of the company on 20 February 2012. The CEO of the airlines, Sanjay Agarwal was summoned by the Directorate General of Civil Aviation to explain the disruptions of the operations.[52]

The State Bank of India, which is the lead lender to Kingfisher Airlines said that they would not consider giving any more loans to Kingfisher unless and until it comes up with a new equity by itself. Political activists also claimed that bailing or helping a private airline would lead to problems within the Government. By 27 February, Kingfisher operated only above 150 out of its 400 flights and only 28 aircraft were functional. Reuters reported that if Kingfisher were to shut down, it would be the biggest failure in the history of Indian aviation.[53] It was announced that the direct flights to the smaller airports of Jaipur, Thiruvananthapuram, Nagpur and also to Hyderabad's Rajiv Gandhi International Airport were all shut down and only one/two-stop flights from its main hubs of Delhi – Indira Gandhi International Airport(IGIA) and Chhatrapati Shivaji International Airport Mumbai would operate.[54] In response to a situation as bad as bankruptcy, Vijay Mallya announced that he had organised funds to pay all the employees' overdue salaries. With bank accounts frozen and huge debts due, it is unknown so as from where he arranged the money. But he apologised to his workers and said that he would pay them immediately. By this time, kingfisher had accumulated losses of ₹4.44 billion (US$62 million) during the third quarter of the fiscal year 2011–12.[55] Reuters then reported that Etihad Airways was interested in investing in Kingfisher by providing equity in exchange for a stake in the airline. Also involved in the talks was the International Airlines Group, owner of British flag carrier British Airways and Spanish flag carrier Iberia.[56]

Vijay Mallya, the ex-chairman of Kingfisher and UB

On 3 March 2012, The CBDT of India froze many more Kingfisher accounts as it was unable to pay all the dues as per schedule. Kingfisher was meant to pay ₹10 million (US$140,000) per working day. It reportedly missed the deadline set by the board and could not pay the dues until the evening on 29 February. This led to more accounts being frozen. The airline neither did comment on the situation, nor pay the taxes.[57] Aviation minister Ajit Singh warned the airline about the temporary suspension of the license until the crisis was sorted out. He announced that the rest of the airline's fleet would be grounded and all flights cancelled until the crisis came to an end. This would be only one step from permanently closing the airline.[58] On 7 March 2012 IATA suspended ticket sales of Kingfisher Airlines citing non-payment of dues as the primary reason, and they said that sales services will only be restored once Kingfisher settles ICH (IATA Clearing House) account.[59] IATA also immediately directed all travel agents to stop booking tickets for Kingfisher. According to preliminary reports, this would affect Kingfisher's business by around 30%. Kingfisher claimed that frozen bank accounts was the main cause of being unable to pay the IATA, and the airline started making alternate arrangements for the sale of tickets.[60]

Soon it became difficult for the airline to follow the much smaller schedule that it earlier released as even more pilots began to go on strike. A pilot later claimed that from 12 March, about 80% of the pilots would not fly as they mentioned in their letter to Vijay Mallya. The airline's plans on restarting all services by 4 April did not seem too real at the moment.[61] On 12 October 2012 an income tax court in Hyderabad issued a non-bailable warrant against Kingfisher Airlines and its chairman Vijay Mallya in a case of 'bouncing' cheques filed by GMR Hyderabad International Airport Ltd (GHIAL). The case pertains to bouncing of cheques worth Rs 100 million issued by Kingfisher Airlines to GMR as Hyderabad airport charges. GMR Hyderabad International Airport Ltd, which manages the Rajiv Gandhi International Airport, had earlier moved the Nampally criminal court in Hyderabad and filed a case against Kingfisher for dishonouring four cheques worth Rs 105 million.[62] On 20 October 2012, Kingfisher's licence was suspended by the Directorate General of Civil Aviation after it failed to address the Indian regulator's concerns about its operations.[63]