South Asian Journal of Management

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An Examination of the Risk Severity of Kingfisher Airlines Ltd. (KFA) Pre- and Post-Acquisition of Deccan Aviation Ltd. (DAL)


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1 Department of Management Studies and Research Centre, B. M. S. College of Engineering (BMSCE), P. O. Box No. 1908, Bull Temple Road, Bengaluru 560019, India
     

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The open sky policy promulgated by the Government of India encouraged Kingfisher Airlines Ltd. (KFA) to commence operations in 2005 as a Full-Service Carrier (FSC). But rivalry from Low-Cost Carriers (LCCs) compelled Vijay Mallya, the Chairman of United Breweries (Holdings) Ltd. (UBHL) to takeover Deccan Aviation Ltd. (DAL) in 2007, through his wholly owned subsidiary Kingfisher Radio Ltd. (KRL). This gave him the opportunity to operate into LCC brand Air Deccan. The acquisition deal intended to attain efficiency in operations maintenance and reach break-even quickly. However, due to increasing fuel prices, debt and improper management strategies, profitability could not be attained by KFA. This study aimed to recognize the risk severity and effectiveness of the acquisition strategy by assessing the financial and operational risks of KFA. Financial data of KFA for five years pre- and post- the acquisition event were used and tested using applicable statistical techniques. In total, eleven ratios were computed, out of which seven ratios viz. Equity Multiplier, Interest Coverage (two ratios), Net Fixed Assets to Net Worth, Proprietary, Total Debt to Net Fixed Assets and Total Liabilities to Net Worth were negatively affected post-acquisition. This clearly indicated that the decision to acquire DAL and resource utilization by KFA proved futile. Implications for practice from this experience have been mentioned.

Keywords

Acquisition, Break-Even, Financial Risk, Kingfisher Airlines, Operational Risk.
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  • An Examination of the Risk Severity of Kingfisher Airlines Ltd. (KFA) Pre- and Post-Acquisition of Deccan Aviation Ltd. (DAL)

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Authors

A. Satya Nandini
Department of Management Studies and Research Centre, B. M. S. College of Engineering (BMSCE), P. O. Box No. 1908, Bull Temple Road, Bengaluru 560019, India
Soumya Rao
Department of Management Studies and Research Centre, B. M. S. College of Engineering (BMSCE), P. O. Box No. 1908, Bull Temple Road, Bengaluru 560019, India

Abstract


The open sky policy promulgated by the Government of India encouraged Kingfisher Airlines Ltd. (KFA) to commence operations in 2005 as a Full-Service Carrier (FSC). But rivalry from Low-Cost Carriers (LCCs) compelled Vijay Mallya, the Chairman of United Breweries (Holdings) Ltd. (UBHL) to takeover Deccan Aviation Ltd. (DAL) in 2007, through his wholly owned subsidiary Kingfisher Radio Ltd. (KRL). This gave him the opportunity to operate into LCC brand Air Deccan. The acquisition deal intended to attain efficiency in operations maintenance and reach break-even quickly. However, due to increasing fuel prices, debt and improper management strategies, profitability could not be attained by KFA. This study aimed to recognize the risk severity and effectiveness of the acquisition strategy by assessing the financial and operational risks of KFA. Financial data of KFA for five years pre- and post- the acquisition event were used and tested using applicable statistical techniques. In total, eleven ratios were computed, out of which seven ratios viz. Equity Multiplier, Interest Coverage (two ratios), Net Fixed Assets to Net Worth, Proprietary, Total Debt to Net Fixed Assets and Total Liabilities to Net Worth were negatively affected post-acquisition. This clearly indicated that the decision to acquire DAL and resource utilization by KFA proved futile. Implications for practice from this experience have been mentioned.

Keywords


Acquisition, Break-Even, Financial Risk, Kingfisher Airlines, Operational Risk.

References