About vijay mallya
Born to Indian entrepreneur Vittal Mallya in 1955, Vijay Vittal Mallya gained fame as “The King of Good Times” or “The playboy of the East.” His father was a well-known figure as the director of United Breweries (UB) Group, a position that Vijay Mallya himself achieved at the young age of 23. After his father’s sudden passing, Vijay Mallya took over as the chairman of the UB Group.
Vijay Mallya’s extravagant and luxurious lifestyle was well-known, as demonstrated by the extravagant New Year celebrations held at his Kingfisher Villa in Goa, and the lavish birthday parties thrown on his luxurious yacht, ‘The Indian Empress.’ These events were attended by prominent sports personalities, Bollywood stars, and models.
As the heir to India’s largest liquor company, he had amassed a fortune that included a private jet, a yacht, and a collection of 250 rare cars. Today, we will now explore how “The King of Good Times” became a debt-ridden slump.
Despite being known as ‘The playboy of the East’ and giving the impression that Vijay Mallya was simply wasting his inherited millions like a spoiled child, his accomplishments actually present a very different picture. When he took over as the chairman of the UB Group at the age of 28 in 1983, he successfully turned the beverage company into a multinational conglomerate comprising more than 60 companies.
One of his initial significant choices was to bring together the different companies into a unified entity known as the “UB Group”. This also included separating the unprofitable entities to concentrate on the primary enterprise, which was the production of alcoholic beverages.
Vijay Mallya did not limit himself to the triumphs of his alcoholic beverage company. He expanded his business empire by procuring Berger Paints, Best, and Crompton in 1988, Mangalore Chemicals and Fertilizers in 1990, and The Asian Age newspaper, publisher of film magazine, and Bollywood magazine Cine Blitz in 2001.
Furthermore, he held the position of Chairman for numerous companies such as Sanofi India and Bayer Crop Science. His accomplishments propelled him to be recognized as one of the renowned business magnates in India.
Vijay Mallya and Kingfisher Airlines
While Vijay Mallya achieved success in managing several companies as mentioned previously, his reputation is not based on their accomplishments, but on the downfall of Kingfisher and the subsequent events. Kingfisher Airlines was a crucial part of Mallya’s aspiration to establish a top-notch airline in India.
Vijay Mallya had aspirations of expanding Kingfisher Airlines globally, but Indian regulations prohibited airlines that had been in operation for less than five years from operating international routes. To circumvent this law, Mallya attempted to acquire existing airlines, but was initially unsuccessful in his bid for Air Sahara in 2006. He ultimately acquired Air Deccan, which allowed Kingfisher to commence international operations in 2008 with its inaugural flight from Bangalore to London. By 2008, the airline had a fleet of 77 aircraft and was operating 412 domestic flights per day, carrying 10.9 million passengers. It also became the market leader in India with a 22.9% market share in 2009.
Despite its success, Kingfisher Airlines suffered losses from its inception, and its shareholders did not receive any dividends. The airline struggled to capture markets, and its competitors continued to thrive. In 2011, the airline disclosed cash flow problems, leading Mallya to continuously borrow money from banks to keep the loss-making business afloat.
In 2012, SBI declared Kingfisher Airlines as a non-performing asset, and it was unable to pay its employees, resulting in pilots leaving for better opportunities. Finally, the airline was grounded in 2012, and its license was canceled in December of that year, marking the end of the Kingfisher era.
Things that went wrong
2008 Recession: The airline industry was struggling during 2008, with many airlines going bankrupt due to the high capital costs of planes, fluctuating fuel prices, and varying regulations across different countries. Kingfisher Airlines also faced similar issues after the 2008 recession.
During the recession, crude oil prices doubled to $140 per barrel compared to the average of $72 between 2005 and 2010. This led to a significant impact on the aviation market, with the International Air Transport Association (IATA) estimating losses of $5 billion. Airlines in India were particularly affected by the taxes and levies imposed by the government. By the end of 2008, Kingfisher’s debt had increased to Rs. 5600 crores from Rs. 934 crores in March of the same year.
Issues with Air Deccan: Vijay Mallya initially kept Air Deccan and Kingfisher as separate entities after the acquisition, but it soon became apparent that Kingfisher was favored over Air Deccan in case of any scheduling conflicts between the two. This led to many Air Deccan customers switching to other airlines, rather than flying with Kingfisher. The Serious Fraud Investigation Office (SFIO) later found that the merger was conducted in violation of corporate ethics, as Kingfisher had created three new departments to evade paying capital gains tax.
Loan taken on Kingfisher
Loans associated with Kingfisher amounted to Rs. 7000 crores. The table below shows the loans taken by Kingfisher from various banks
| Bank | Loan amount |
| SBI | 1600 |
| IDBI Bank | 800 |
| PNB | 800 |
| Bank of India | 650 |
| Bank of Baroda | 550 |
| United Bank of India | 430 |
| Central Bank | 410 |
| UCO Bank | 320 |
| Corporation Bank | 320 |
| State Bank of Mysore | 150 |
| Indian Overseas Bank | 140 |
| Federal Bank | 90 |
| Punjab Sind Bank | 60 |
| Axis Bank | 50 |
| Other 3 banks | 603 |
There has also been controversy when it comes to the means used and collateral placed to acquire these loans. BOI had given a loan of 300 crores to Vijay Mallya on items like office stationery, boarding pass printers, and folding chairs as collateral. The banks’ willingness to provide loans based on Current assets as capital created suspicion on the bank officials if they were involved in the Vijay Mallya scam.
The loans given by SBI were on the trademarks and Goodwill of Kingfisher airlines kept as collateral. These trademarks worth over Rs. 4000 crores in 2009 have plummeted to not more than Rs. 6 crores by 2012. IOB too faces similar issues where the 2 helicopters placed as collateral are not in a flying condition and hence cannot be sold to recover Rs. 100 crores of debt.
In Jan 2012, SBI declared Kingfisher as NPA and in Oct 2012, DGCA suspended the flying license of Kingfisher Airlines.
Conclusion
From this failure gives following lesson for investors:
- Do look out for flamboyant promoters or top level management of the company.
- Do look out if the Debt level of a company is increasing while the profit margin is negative or on the same levels.
- The Airline business is a tough business as there are various costs involved like fuel cost, flying license, flying restriction, airplane lease, airplane parking cost, etc. and these costs can eat up the margin easily during economic down trend.