United Breweries Group or UB Group (BSE: 507458, BSE: 532432, BSE: 532747, BSE: 530011) an Indian conglomerate company based in Bangalore, India. The company has annual sales of over IJS$4 billion and a market capitalization of approximately IJS$12 billion. Its core business includes beverages, aviation, electrical and chemicals. The company markets beer under the Kingfisher brand and has also launchedKingfisher Airlines, an airline service in India, with international flights operating recently. United Breweries is India’s largest producer of beer with amarket share of around 48% by volume. ] The company chairman is Vijay Mallya who had been a member of the Indian Parliament. United Breweries now has greater than a 40% share of the Indian brewing market with 79 distilleries and bottling units across the world. Recently UB financed a takeover of the spirits business of the rival Shaw- Wallace company giving it a majority share of India’s spirits business. The group owns the Mendocino Brewing Company in the United States. The UB Group was founded by a Scotsman, Thomas Leishman, in 1857.
The Group took its initial lessons in manufacturing beer from South Indiabased British breweries. At the age of 22, Vittal Mallya was elected as the company’s first Indian director in 1947. After a year, he replaced R G N Price as the chairman of the company. RangaraJan took-over from R G N Price. United Breweries made its initial impact by manufacturing bulk beer for the British troops, which was transported in huge barrels or “Hogsheads”. Kingfisher, the group’s most visible and profitable brand, made a modest entry in the sixties.
During the 1950s and 60s, the company expanded greatly by acquiring other breweries. First was the addition of McDowell as one of the Group subsidiaries, a ove which helped United Breweries to extend its portfolio to wines and spirits business. Strategically, the Group moved into agro-based industries and medicines when Mallya acquiredKissan Products and formed a long-term relationship with Hoechst AG of Germany to create the Indian pharmaceutical company now known asAventis Pharma, the Indian subsidiary of the global pharma major Sanofi- Aventis.
Kingfisher Airlines Limited is an airline group based in India. Its head office is in Andheri (East), Mumbai and Registered Office in UB City,Bangalore. Kingfisher Airlines, through its parent company United Breweries Group, has a 50% stake in low- ost carrier Kingfisher Red. The airline has been facing financial issues for many years. [5] Until December 2011, Kingfisher Airlines had the second largest share in India’s domestic air travel market. However due to a severe financial crisis faced by the airline at the beginning of 2012, it has the lowest market share since April 2012.
The airline has temporarily shut down its operations when on October 20, 2012 the DGCA suspended its flying license. This suspension had been due to failure to give an effective response to the show-cause notice issued by DGCA. However, The irline had locked out its employees for several days before this suspension. On 25 October 2012, the employees agreed to return to work. [8] disruptions within Kingfisher Airlines. Ever since the airline commenced operations in 2005, it has been reporting losses. After acquiring Air Deccan, Kingfisher suffered a loss of over 1,000 crore (IJS$182 million) for three consecutive years.
By early 2012, the airline accumulated losses of over 7,000 crore (IJS$I . 27 billion) with half of its fleet grounded and several members of its staff going on strike. Kingfisher’s position n top Indian airlines on the basis of market share had slipped to last from 2 because of the crisis. The start of the crisis was the freezing of the bank accounts of the airline by the Income Tax Department. [l] Following are the year by year financial results of Kingfisher Airlines, all values are depicted in Indian rupee (INR) crore except EPS, which is in plain INR. 2] # From TO Months Total Income Cost Net Profit EPS 01 Apr-05 Jun-06 15 1,352 1 ,689 -337 02 Jul-06 Jun-07 12 2,142 2,562 -420 -42 03 jul-07 Mar-08 1,546 1 ,734 -188 -11 Apr-08 Mar-09 5,577 7,186 -1,609 -55 05 Apr-09 Mar-10 5,271 6,918 -1,647 -54 Apr-10 Mar-II 6,496 7,523 1,027 -16 07 Apr-11 sep-11 3,410 4,142 -732 n/a Total 78 25,794 31,754 -5,960 [edit]Debt recast In Nov 2010, Kingfisher Airlines has completed restructuring 8,000 crore (IJS$I . 46 billion) debt, with all 18 lenders agreeing to cut interest rates and convert part of loans to equity. 3] Lenders have converted 650 crore (IJS$118. 3 million) debt into preference shares which will be converted into equity when the airline lists on the be converted into ordinary equity at the price at which the GDRs are sold to investors. Besides the 1,400 crore (US$254. 8 million) debt which will be converted into preference shares, another 800 crore (US$145. million) debt has been converted into redeemable shares for 12 years. [3] Airline’s average interest rate is now down to 11%, helping the airline save 500 crore (IJS$91 million) crore every year on interest cost.
Consortium of banks was represented by SBI Capital Markets. Kingfisher Airlines Ltd has informed BSE that the Board of Directors of the Company at its meeting held on November 25, 2010, has approved a Debt Recast Package (DRP) with lending banks, following a one-time relaxation in restructuring guidelines sanctioned by the Reserve Bank of India. The salient features of the DRP include: 1. Conversion of debt f up to 1,355 crore (US$246. 61 million) from lenders into share capital. [3] 2. Conversion of debt of up to 648 crore (IJS$1 17. 94 million) from promoters into share capital. . Reschedulement of repayment of the balance debt to lenders over 9 years with a moratorium of 2 years. 4. Reduction in interest rates. 5. Sanction of additional fund and non-fund based facilities by the lenders. The recast plan involved the issuing of the following types of preference shares. [4] Share type Dividend Quantity Price Recipient Redeemable Cumulative Preference Shares 8% 10 (US$O. 18) Consortium of lenders Compulsorily Convertible Preference Shares 7. % United Breweries (Holdings) Ltd, Kingfisher Finvest India Ltd Optionally Convertible Debentures 100 (IJS$I . 2) Star Investments Ltd. Optionally Convertible Debentures Margosa Consultancy Pvt. Ltd. Redect Consultancy Pvt. Ltd. In addition to these issues, 9,700,000 units of 6% Redeemable Preference Shares of 100 (US$I . 82) each issued to United Breweries (Holdings) Ltd. (Promoter Company) were converted to 97,000,000 units of 6% Compulsorily Convertible Preference Shares of 10 (IJS$O. 18) each. Kingfisher Airlines, in Nov 2011 was attempting for a second debt recast. However second debt recast has been ruled out by Government of India. Minister of state for Finance made a statement on 09th Dec 2011. 5] [edit]Recast pledge Kingfisher Airlines has pledged its brand as collateral with its lender consortium for 4,100 crore (US$746. 2 million). The brand valuation was done by Grant Thorton in 2010. [5] Reportedly the Brand has been valued and loan raised worth triple the carrier’s market value. [6] On July 6, 2011, pursuant to requirements prescribed under the Debt Recast Package Kingfisher Airlines’ founder companies, United Breweries (Holdings) Ltd and Kingfisher Finvest Ltd, have pledged their entire stake in the airline with certain of its lenders. ] United Breweries Holdings Ltd held 199,598,555 shares (representing 40. 1% of total outstanding shares) in the airline and has pledged all the shares to lenders. At the same time, Kingfisher Finvest Ltd held 63,478,570 shares (representing 12. 75% of total outstanding shares) has pledged its entire holding to the lenders. [8] [edit]Payment problems [edit]Delayed salary Kingfisher Airline has staff strength of 6,000 and spends 58 crore (US$10. 56 million) on salaries a month. According to the first quarter financial results, it has 173. 6 crore (IJS$31. 61 million)under the employees cost head, which has increased from 163. 1 crore (US$29. 74 million) during the same quarter last year. Kingfisher Airlines delayed salaries of its employees in August 2011 and for four months in succession from October 2011 to January 2012 In a report to DGCA on 09th Jan 12, Kingfisher had stated that it has paid past (salary) dues to 60% of its employees and that by 31st Jan 12, payment of December 2011 salary for all its employees will be done. 13] Protesting at the delays in payment,Kingfisher pilots started making in-flight announcements citing “It is their sense of duty towards the guest that is making them fly despite not being paid salaries for the past two months” . 14] Kingfisher also defaulted on paying the Tax Deducted at Source from the employee income to the tax department. [1 5] [edit]Fuel Dues HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped the fuel (ATF) supplies for about two hours to Kingfisher airlines owing to the non-payment of dues.
Situation was later resolved by Vijay Mallya meeting the CBDT Chairman to unfreeze some A/C’s. [16] In the past several years, Kingfisher airlines has had trouble paying their fuel bills. BPCL: Bharat Petroleum Corporation in 2009 had filed a case against Kingfisher airlines for non-payment of dues. High court in an order said that irline paid it in instalments. [17] [edit]Aircraft lease rental dues Since 2008, it has been reported that Kingfisher Airlines has been unable to pay the aircraft lease rentals on time.
GECAS: In Nov 2008, GE Commercial Aviation Services threatened to repossess 04 leased planes in lieu of default. Kingfisher Airlines initially denied that it missed the had filed a complaint with DGCA saying Kingfisher had defaulted on rentals for four Airbus A320 aircraft, and sought repossession of the planes. [20] In Jan 2009, The Karnataka High Court rejected petition by Kingfisher Airlines to restrain GECAS from taking any tep to deregister and repossess the 04 aircraft in dispute. As a result, Kingfisher had to return the A320 aircraft to GECAS. 21] DVB: In Jul 2010, DVB Aviation Finance Asta Ltd (a lessor from Singapore), sued Kingfisher Airlines for lease rental default. Case was filed in a UK court on Jul 16, 2010 after Kingfisher did not pay for three month lease rental for A320 aircraft it leased from DVB. [22] Kingfisher Airlines has grounded 15 out of 66 aircraft in its fleet as it was unable to meet the maintenance and overhaul expenses. [23] [edit]AAl reports Kingfisher received a notice from the Airports Authority of India on February 2012 egarding accumulated dues of 255. 06 crore (US$46. 42 million).
The airline was operating on a cash and carry basis for the last six months, with daily payments amounting to 0. 8 crore (US$145,600) [24] [edit]lncome Tax Department On 9 December 2011, MC Joshi,Chairman CBDT announced that IT is considering legal action against Kingfisher for not paying tax and may go for prosecution. [5] As on 10th Jan 2012, Kingfisher Airlines has service tax arrears of 60 crore (IJS$10. 92 million). The Ministry of Finance has given a concession to Kingfisher and instructed them to pay the dues by 31st Mar 2012. In Jan 2012, Kingfisher paid 20 crore (US$3. 4 million) towards its dues for December 2011 and part of the arrears. [25] [edit]Bank arrears Kingfisher Airlines had not paid some bankers (Lenders) as per the Debt Recast Package (DRP) with lending banks. Till the end of Dec 2011, the arrears were estimated to be 260 crore (US$47. 32 million) to 280 crore (US$50. 96 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$32. 6 If arrears ere not paid in time (Dec 2011); Kingfisher Airlines would automatically have been treated as NPA, (Non-performing asset). [27] 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 turning a non-performing asset[28] State Bank of India (SBI) on 5th Jan 2012 declared Kingfisher Airlines a NPA (Non-performing asset). SBI is largest creditor and the leader of the consortium of banks in the DRP (Debt Recast Package) and has an exposure of 1 ,457. 78 crore (US $265. 2 By Feb 2012, Kingfisher has been decleared NPA by following Bank of Baroda PNB IDBI BOI Corporation Bank [edit]Second Time freezing 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 (IJS$12. 74 million) to the service tax department. [32] Indian tax body also stated that Kingfisher Airlines is delinquent[33] As response, Dr. Vijay Mallya called on the Chairman CBDT and offered to pay up the dues by 13 Dec 1 1 [34] Kingfisher bank accounts were unfrozen on 14th Dec 11. 35] Due non-payment, several Kingfisher’s vendors had filed winding up petition ith the High Court. As on Nov 2011, winding up petition of seven creditors was pending before the Bangalore High Court. [36] In the pastLufthansa Technik & Bharat Petroleum Corporation Limited (BPCL) had also filed winding up petition against Kingfisher Airlines[37] [edit]Other problems [edit]Erosion of net worth In Sep 2011, the Chairman & Managing Director of Kingfisher Airlines made following disclosure to 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 mplementation 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”[38] 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 needs capital infusion to remain viable and this has pushed shares to near historic lows. [39] Kingfisher Airlines Lenders later stated that they consider that company is viable. 40] On 1 5 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. 41] [edit]Oneworld alliance On 7 June 2010 Kingfisher became a member elect of the Oneworld airline alliance when it signed a formal membership agreement. Kingfisher confirmed on the 20th December 2011 that it will Join the Oneworld airline alliance on February 10, 012. Kingfisher would have been the first Indian carrier to Join one of the big airline alliances. [42] However on February 3, 2012, owing to bad financial situation and two days after IATA clearing house suspended Kingfisher airlines; the airlines participation to Oneworld has been put on hold. 43] Recent reports indicate that Oneworld is cofIrmingKingfisher’s ouster from the alliance in the coming few days. [edit]2012 crisis [edit]Fleet grounding During late February, 2012, Kingfisher Airlines started to sink into a fresh crisis. Several flights were cancelled and aircraft were grounded. The cash-strapped 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 February 20. With this, Kingfisher’s market share clearly dropped to 1 1. 3%. [44] 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. [45] 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 February 27, Kingfisher operated only above 150 out of its 400 flights and only 28 aircraft were functional. Reuters reported that if Kingfisher were to shutdown, it would be the biggest failure in the History of Indian Aviation. [46] 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 and Mumbai would operate. 47] In response to a situation as bad as bankruptcy, Vijay Mallya announced that he had organized 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 apologized to his workers and said that he would pay them immediately. By this time, kingfisher had accumulated losses of 444 crore (IJS$80. 81 million) during the third quarter of the fiscal year 2011-12. [48] 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. [49] [edit]Frozen bank accounts On March 3, 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 1 crore (US $182,000) per working day. It reportedly missed the deadline set by the board and could not pay the dues until the evening on February 29. This led to more accounts being frozen. The airline neither did comment on the situation, nor pay the taxes. 50] Aviation minister Alit 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. 51] [edit]lATA suspension On March 7, 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. 52] 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 unable to pay the IATA, and the airline started making alternate arrangements for the sale of tickets. [53] Soon it became difficult for the airline to follow the much smaller chedule that it earlier released as even more pilots began to go on strike. A pilot later claimed that from March 12, about 80% of the pilots would not fly as they mentioned in their letter to Vijay Mallya.
The airline’s plans on restating all services by April 4 did not seem too real at the moment. [54] [edit]Arrest Warrant against Chairman Mr. Vijay Mallya On October 12, 2012 a Income Tax court in Hyderabad issued a non bailable warrant against Kingfisher Airlines and its chairman Vijay Mallya in a case of cheques bouncing filed by GMR Hyderabad International Airport Ltd (GHIAL). The case pertains to bouncing of cheques worth Rs 10 crore 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 10. 5 crore. [citation needed][55] [edit]Suspension of licence On 20th 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 . [56]
