With Jet Airways failing in 2019 and the aborted escape bid of its chairman Naresh Goyal, spotlight has once again fallen on the grounding of Kingfisher Airlines and the subsequent flight of Vijay Mallya, ex-chairman of Kingfisher Airlines and absconder extraordinaire. Both of the cases have turned out to be extremely similar – their owners’ excessive and imprudent ambition sunk both of them down.
Furthermore, both of them were grappling huge losses and had borrowed substantial amounts to offset them. However, what was different about the Jet Airways case was that the perpetrators (Naresh Goyal and his family) were apprehended in time, just as the plane on which they were, was about to take off. Had such timely intervention been done in Mallya’s instance, maybe he would have been serving time behind the bars now for recklessly playing with so many people’s lives.
A Chronological Assessment of the Collapse of Kingfisher Airlines
It was in 2003 that Kingfisher Airlines was founded by United Breweries Group. Vijay Mallya was looking to augment his business and he believed that investing in aviation was the quickest route to a bigger reputation and greater wealth.
The airline the carrier commenced its commercial operations on 9th May 2005, initially plying with a fleet of four deluxe Airbus planes. In November of the same year, Mallya proclaimed at the World Economic Forum that Kingfisher was looking to go public with an IPO (initial public offering) in 2006, with the aim of further expansion.
Right from the beginning, the company started posting record losses. Capital had to be infused into it somehow, and so the borrowings started but Vijay Mallya, with his characteristic arrogance and suave charm was able to ward off the creditors’ concerns. A series of bad business decisions exacerbated the situation, and the company started crumbling from the pressure of having to make constant reimbursements.
Kingfisher was a luxury carrier, which revolutionised the experience of air travel in India. The planes had reclining seats with personalised television sets and sumptuous meals were provided gratis. In fact, it was one of the first airlines to provide live television to its passengers.
Soon, Kingfisher became exceedingly popular and gained a large following among the Indian customer base. Be that as it may, this phenomenon was restricted to the metros only and Kingfisher had few takers in the second-tier cities.
In 2007, Mallya pompously declared that he would like to take over Air Deccan, a low-cost carrier, to cater to middle class’ more economical needs. Air Deccan founder G.R. Gopinath blustered at his high-handedness and warned that the two businesses would not mesh together as they had diverse interests and business models. However, he capitulated under investors’ pressure and allowed Mallya to acquire Air Deccan.
Mallya had seen himself as a visionary. He would present his management with his plans or desires and it would be up to his team to execute them. This lack of interest in thinking things through turned out to be his fatal flaw. Air Deccan had been a loss-making enterprise and Mallya and co. were not able to turn it around. It was a huge liability on Kingfisher and only served to drain its resources. Furthermore, their financial troubles got compounded during the global economic meltdown of 2007-08. Fuel prices were sky-high and Kingfisher had just started flying international routes.
In November 2010, Kingfisher completed the process of restructuring its debts. In accordance with the approved Debt Recast Package, banks agreed to convert a large share of the amounts lent to share capital, and reduced their rates of interest too.
Finally, on 28th September 2011, Mallya announced that it would suspend the operations of Air Deccan (by that time, it had been renamed Kingfisher Red).
In a statement to the Bombay Stock Exchange, he also assured them that it was undertaking numerous measures to practise and cut losses. He asserted that Kingfisher Airlines was still a going concern (meaning, it was financially viable), rejecting the consternations of the company’s auditors.
November 2011 also saw Kingfisher being denied credit on the basis of non-payment of earlier dues. It was forced to ground more than twenty of its planes and its ranking as per domestic market share plummet from third to fifth. Its annual report revealed more of its financial woes and Mallya ascribed these to the government’s inability to keep fuel prices under check and its high taxation rates. Unlike Air India, which was also reeling under heavy losses, the government was uncertain about considering a bailout package as it was not a government-owned enterprise.
In the next month, the Mumbai Income Tax Department disclosed that Kingfisher had tax arrears of about seventy crores and so, their banks accounts were frozen. Although the airlines had collected service tax from passengers, the money had not been deposited to the service tax department.
Similarly, they had also defaulted on paying income tax deducted from its employees. In December 2011, Kingfisher also narrowly escaped being declared a non-performing asset when it was able to barely pay back the latest instalment of its debt to its lenders but they could not repeat such a feat next year. Kingfisher Airlines was reported as a non-performing asset by a consortium of banks like the State Bank of India, Punjab National Bank, IDBI Bank and so on.
The next set of difficulties that Kingfisher had to tackle was employee revolts. Employees alleged that Kingfisher had not paid their salaries for the past couple of months. Protests and strikes were held sending operations into disarray. Workers even publicise their troubles on aircrafts via intercom announcements. Mallya assured them that they would be paid after the restrictions on his bank accounts were lifted.
Amid rumours of layoffs, widespread flight cancellations and withdrawals from airports, the Directorate General of Civil Aviation (DGCA) finally took notice of the imbroglio. By this time, Kingfisher Airlines also owed a substantial amount to the Airport Authority of India. Ultimately, on 20th October 2012, the DGCA scrapped its license and on 25th February 2013, its international flight traffic rights were taken away and its slots given to other domestic carriers. Thus ended the reign of Vijay Mallya, the so-called ‘King of Good Times’.
Later in 2013, banks proposed that United Breweries Group, being Kingfisher’s parent company, repay its loans. When that approach did not work, they named Vijay Mallya a ‘wilful defaulter’. However, their grievances did not get a swift redress as Mallya proceeded to decamp for London soon after. He tried to defend himself on social media, saying that the charges against him were part of a plot to defame him.
The Indian government is still in the process of extraditing him. Scotland Yard apprehended him in April of 2017 but he was let out on bail virtually immediately. In December 2018, a UK court ruled that he be deported and the Home Secretary approved of it. However, Mallya decided to throw a spanner in the works by appealing against the judicial order on 4th February 2019.
Business analysts decisively claim that it is Mallya’s negligent business approach that is responsible for causing Kingfisher Airlines to sink in disgrace. Where he should have appointed directors for each of his acquired businesses, he tried to bring them under one roof, which created a complete hotchpotch of each company’s operations. Indeed, The Hindu has appropriately described him as an ‘absentee landlord’.
Moreover, he should have consolidated his existing holding before venturing on to newer pastures. For instance, Kingfisher Airlines should have strengthened its domestic operations and focused on rising to the premier position in the domestic sphere before it started travelling on international routes.
Mallya’s greed, avarice and acquisitive zeal also played a large part in Kingfisher’s downfall. He kept on buying assets without evaluating them on their financial viability. To illustrate, he bought a liquor brand called Whyte and McKay, newspapers, magazines, journals, television brands, fashion houses, to name a few.
And who can forget his sponsorship of the infamous Formula One team, Force India, and the Indian Premier League team, Royal Challengers Bangalore, in the cricketing sphere?
It is rather galling to see Vijay Mallya live a jet setting life in London, while hundreds of his former employees live hand to mouth. He remains unrepentant; his self-vindication relies on the cliche that he committed one mistake and he should not have to suffer through the entirety of his life for it.
As per recent estimates, the brewery tycoon owes at least nine thousand crores to creditors on behalf of Kingfisher. Indeed, the collapse of Kingfisher should have been an expected eventuality – it had failed to post profits since its beginning and Mallya had kept on expanding his business without addressing this core fault.
However, bureaucratic red tape and political favouritism have continued to save his neck. At this point, the government has not yet been able to extradite him due to the nitty-gritties of the English law. It is uncertain if and when he will ever repay the money he owes.