Case Study | Corporate Governance | Kingfisher Airlines - GRM Institute

Case Study | Corporate Governance | Kingfisher Airlines

CASE STUDY- KINGFISHER AIRLINES

BY AATIF PILPILE​, AKSHAY R S,​ GOVIND, ​PRIYANKA NEELAM (PGDRM Batch Jan’20-21 and July’19-20)

 

CORPORATE GOVERNANCE
Cadbury Committee​: 
  • Corporate governance is the system by which business corporations are directed and controlled. Board of Directors is responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.​
​Organization for Economic Co-operation and Development:
  • Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. It provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. ​
The Institute of Company Secretaries of India:
  • Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.​

 

 

 

KINGFISHER AIRLINES CASE STUDY

 

About the company​: KINGFISHER AIRLINES LIMITED
  • Kingfisher Airlines Limited was an airline group based in India.
  • Its head office is in Andheri (East), Mumbai, and its registered office in UB City, Bengaluru.​
  •  Kingfisher Airlines, through its parent company United Breweries Group, had a 50% stake in low-cost carrier Kingfisher Red.​
  • Until December 2011, Kingfisher Airlines had the second-largest share in India’s domestic travel market.​
  • The chairman of the company is Mr. Vijay Mallya, who has now cases pending against him.​

Initial Troubles 
  •  KFA’s troubles started right from the start of its operations in 2005. It is also a well-known fact that the fixed costs for Airlines are very high. Fuel expenditure accounted for 50% of aviation firm’s operating costs. In 2005, the oil prices were soaring at nearly $75 per barrel.​
  • For 2005, KFA had a revenue of ₹ 305.55 crore ($ 61 million),and the net loss was ₹ 19.53 crores ($ 4 million). In 2006 the revenue increased three fold to ₹ 989.12 crores ($197.8 million), and net loss has grown to an alarming ₹ 272.44 crores ($54.4 million).​
  • In order to increase crew size and start foreign service, KFA went for a reverse merging with Air Deccan.​

 

Merging of Air Deccan
  • Acquisition of Air Deccan  Towards the end of 2007,  KFA in order to meet this requirement decided to acquire 46% of ‘Air Deccan’ another low cost Airliner, to compete with other  low cost carriers and most importantly to be able to open international operations.​
  •  Air Deccan was in existence for more than five years and this acquisition would allow KFA to fly on international routes. To facilitate this, a reverse merger was engineered, first Air Deccan acquiring KFA and few months later the merged Airline becoming KFA again. ​
  • KFA also hoped that the acquisition would save ₹ 300 crore ($60 million) annually and also increase the fleet strength to 71. This acquisition was financed with ₹ 550 crore ($110 million) from the group’s holding company UB Ltd.​
  • By March 2008, the debt stood at ₹ 934 crore ($186.8 million)​
  •  In 2009 KFA board of directors approved a resolution to raise ₹ 500 crore (US $ 100 Million) by using Global Deposit Receipts (GDRs) and also other means. Further they approved raising another ₹ 500 Crore ($100 Million) by issuing rights shares to existing shareholders​
  •  By the end of 2009 the net-worth of the company has become negative.​

 

Banks Came To The Rescue 
  • In 2009, IDBI approved a loan of ₹ 950 crore ($190 million) in spite of turning down the same request in 2006.​
  •  Mallya approached a number of other banks between 2008 and 2010 and managed to get huge amount of loans from a number of banks.​
  •  Surprisingly these banks provided the loans to KFA by taking the company’s ‘brand value’ into consideration and seven trademarks as collateral. They included Fly Kingfisher (Label Mark and Word), Flying Models of Kingfisher, Fly the Good Times, Funliner and Kingfisher, which were valued by global consultancy firm Grant & Thornton.​

 

 

 

Read the full case study here: Kingfisher Airlines Case Study

 

Disclaimer

This report has been produced by students of Global Risk Management Institute for their own research, classroom discussions and general information purposes only. While care has been taken in gathering the data and preparing the report, the student’s or GRMI does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied. References to the information collected have been given where necessary.

GRMI or its students accepts no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this report. This report does not constitute advice of any kind.

 

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