What went wrong with vijay mallya – quora electricity transmission efficiency


The liquor business is one of the most profitable businesses in India. There is never a cash flow problem for the manufacturer. Mallya’s business was so profitable, he was able to acquire international brands and lead an extremely lavish lifestyle.

Then he decided to start an airline. In keeping with his outlook to life, the airline was the best in terms of luxury. Passengers were pampered there was inflight entertainment in flights from Mumbai to Delhi. Not a profitable business but still manageable so far. He then decided to grow and to grow he chose to make an hostile acquisition of Deccan Airways – the first low-cost carrier. The objective was to bring the fleet in line with Kingfisher’s own fleet. But this was a period of competition and instead of running a premium airline, KFA turned out to be a low-cost airline with premium facilities.

Then oil prices started rising and KFA was bleeding money. At this point despite the losses, Mallya could still have cut his losses. KFA was a powerful brand and the Gulf airlines were keen on KFA for the landing slots it owned. (airline international landing rights are like international bank branch licences very difficult to get). But rather than exit the business Mallya chose to hold on and negotiated with the banks to restructure his loans and lend him more.

It is not clear why Mallya decided to cling on to the airline despite it being such a cash guzzler. In the past he had had no issues exiting businesses that did not fit in. These included Kissan which he sold to Nestle other companies that he got into and sold included Berger Paints, Best & Crompton Enginnering and Aventis Pharma. But for some reason Mallya refused to let go the airline.

Meanwhile, the economic environment got worse, the airline was plagued with creditor problems (it is not just banks airlines gets credit from lots of agencies). Even after the banks closed in and demanded that loan be repayed, Mallya took a definant stand that the airline was a separate entity. Meanwhile, several small planes rotted in the airport as aircraft authorities refused to release the planes until airport dues are cleared and tax authorities made their own claims.

Finally, banks declared Mallya a wilful defaulter. This resulted funds to all businesses where he was involved with being denied bank credit. Finally, he was forced to completly get out of the liquor business by doing a deal with his erstwhile partner Diageo of UK.

Compared to the tens of thousands of crores that banks stand to lose by way of haircut on steel and other infrastructure loans, the rupees 7000 crore Kingfisher Airline loan was relatively small. But while most defaulters manage to stay below the radar, Maladu attention to himself through his lifestyle. The final blow came when RBI Governor Raghuram Rajan said that defaulters have no business living lavish lifestyles and throwing parties.

Kingfisher has started it’s airline services in May 2005 with a huge expectations, investors also had faith on Vijay mallya because he is running United beverages group(Kingfisher Beer) successfully, he has good relationship with top politicians in India, his personal wealth is more than 7000 cro Cost

Kingfisher started as a premium airlines service with well established standards and good aircrafts, later they focused on low cost airline service, suddenly they acquired Air Deccan and started international flight services 2008 , after 4 years of it’s international services, Kingfisher stopped it’s airline services because of huge debt, not in a position to pay the employee salaries, Airport charges,Fuel bills to the oil companies, bank loan payments.

Kingfisher first launched all economy class with food and entertainment system, later on they shifted focus to luxury business class on their aircraft, lot of air travelers appreciated the hospitality and aircrafts condition and it’s ambience when Kingfisher focus was on luxury.

After acquiring the Air Deccan they suddenly shifted focus on low cost air traveling, frequent changes in the hospitality and aircraft ambience made travelers to lose the interest on the brand, they didn’t focused on highly profitable routes in domestic area, acquir Air Deccan air crafts(Kingfisher Lite) use to run on the same time as Kingfisher airlines, there was no proper syndication between Kingfisher Lite & Kingfisher Airlines.

Another external factor for the Kingfisher downfall is economic slowdown in 2008, Kingfisher first started it’s international route from Bangalore to London in 2008, same year recession affected the whole world, which is indirectly affected the air travel occupancy in international routes, because of the recession airplane fuel prices raised, airport charges for landing is very costly in international airports around the world.

Operational costs of airline industry is very high compare to any industry, companies have to buy the licenses for the routes, companies should invest in the aircraft maintenance, salaries for the employees are very high, airport charges fees for landing and parking, aircraft fuel frequently changes as per the international rates, government collects huge taxes from the airline companies, there is lot of competition between airline companies, all these high operational costs without good profit margin caused the Kingfisher to downfall.

What we must pay attention to is, Kingfisher started connecting Tier 2, Towns like Solapur with Metros like Mumbai. This is a very bold move as all the other airlines only fly the profitable routes. This move also needs huge cash as Airports in these town are not maintained for Civil Aviation but only for VIP movements.

This was a very welcome step by KFA as small towns were also getting connected with metros with better service but KFA had to procure all the facility like Luggage scanner, setting up ticketing and Security operations which sucks lots of cost.

Only bet for Mr. Mallya was getting Foreign Investor. The rules at that time didnt allowed FDI in civil aviation. Mallya tried to convince the UPA government to amend the rules and allow FDI in Civil Aviation. But Politics wanted to see KFA dying.

• Banks & Lenders who could have seen good returns from KFA if they persisted with them for 2/3 years more. As crude oil prices crashed, KFA was not flying to take advantage of it. This was the period which made all of the Indian carriers profitable first time ever.

Losses, Profits, Bankruptcy all are part of Business. Banks who took KFA Brand as a guarantee against the huge loans they gave to KFA to recover losses, but that didnt helped. Ideally Mr. Mallya can be held accountable as he surrender all the collateral he had signed for the loans he took, but politics wanted to see him behind the bars. The govt changed, but one a culprit is always a culprit.

Mr. Mallya is a Business man. With his new ventures Force, Formula 1 race and entertainment business we hope he will raise enough funds to pay his debt. Provided he should be allowed to do it. Else our bank will never recover the bad debts and also the future potential revenues and employment that he can create.

(Admit : Im a fan of Vijay Mallya and I have access to some deep political circles. I might be trolled for my answer but I would request you to see the entrepreneur spirit and industrious nature of this guy who made Force India and IPL reality.