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Stocks

A Hard Time For Kingfisher Airlines

Kingfisher Airlines is in trouble for cancelling flights, it seems. They have cancelled 50% of their flights on Monday (according to WSJ) and 50 pilots have resigned in a week. They have cancelled 30 more flights today and stopped all flights to Dhaka. The airline regulator DGCA has called the top brass to explain why so many flights were cancelled and requested other airlines to accomodate them.

Kingfisher has explained that its bank accounts were frozen by tax authorities – the accusation was that they haven’t deposited the TDS they have collected. (When a company pays salaries, it deducts a certain portion as income tax at source; this is supposed to be deposited to the tax department by the 7th of the following month.) Employees haven’t been paid, and pilots have said goodbye.

By and large the industry is suffering, but in Jan 2012 – the DGCA has removed the data from 2011 – Kingfisher is not the biggest culprit for cancellations.

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Secondly, Kingfisher has done pretty well – again according to the DGCA  – it has the best on-time performance of the lot.

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And also, the (nearly) lowest passenger complaint ratio!

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Now I don’t know how reliable this data is, as Kingfisher has had serious news items about cancellations, but the data shows it’s not doing as badly as one would think?

The share has fallen 9% today but is at least 20% higher than the lows of Jan.

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While the stock craters, news comes in that certain FIs have converted part of their debt to equity at Rs. 25 per share, even if that may be forced. Banks are calling the exposure to KFA an NPA, lenders are trying to sequester assets, airports are refusing them entry unless they pay, oil companies want them to put down cash for the oil they get, and companies that leased them planes are taking the planes back quoting non payment of rent. This is not a good sign, and no matter what the reports, this seems to be the perfect storm for Kingfisher.

Disclosure: no positions. I won’t be buying, even if the data looks good. (Honestly, the DGCA data is something I suspect now).

  • daddysan says:

    While the full month Jan figures look good for KF, their mass cancellations occurred over a week. That coupled with the perfect storm caused by distrust will make those performance figures spike in the negative direction in Feb. Do you agree?

    • Yes, I agree. I think the sh** has now hit the fan, which is why the concentration of bad news is enormous. Whether the situation is contained, there is a bailout or KF in general goes down the tubes now depends on external support, and is likely out of the hands of the company. Having said that, the entire industry is in shambles.

  • 1. Big investors (hopefully knowledgeable ones) have said time and again that airlines never make money for shareholders. Somebody said something about how killing wright brothers at kitty hawk would have been biggest gift to share holders for posterity (or something of that sort). Still, so many private airlines come up, make losses and go away. I am sure the promoters are very smart people. Then why does this charade continue? Is there something more (some conspiracy theory) than what meets the layman eye?
    2. SBI had huge investments in kingfisher which will go (or have already gone) the bad debt way. Is there any risk to people who maintain their fixed deposits at SBI? Technically, deposits at bank are not insured/guaranteed. Deepak, do you have any comments on this regard?
    3. In december I travelled by kingfisher and had to go through cancellation/rebooking. However, in spite of the cancellation, my consumer experience was superb. As a passenger, I am feeling very sorry that an option like kingfisher airlines is possibly going to vanish from my travel plans.

    • 1. No, I think the smartest people know that this industry is hugely loss making and has been forever. But it is such a visible advertisement for anythign that people love to invest in it. For instance. KFA is the best marketing campaign for Mallya’s beer, way better than anything else he could have done, except he did it with other people’s money.
      2. Deposits are guaranteed upto 1 lakh. Beyond that they arenot. But not to worry, it is VERY unlikely SBI will go bankrupt.
      3. I’ll be sorry to see it go too. I have travelled first class on it – one day in 2007 when I was feeling really rich and I had to pay less than 15K for a return ticket on BLR-DEL. I loved the experience and Mallya really changed things (like having people on the kerbside helping with your bags).