24 AUGUST 2022

CASE
STUDY

ON THE DOWNFALL OF VIJAY MALLYA




ASSIGNMENT 3 : CASE STUDY EAP-C

Umang Jain
SKG212E0163

HE WAS CALLED
“THE KING OF GOOD TIMES”
H
e was a businessman who had it all and wanted even more, but in the end,
almost lost it all. After his father Vittal Mallya died in 1983, he quit his job at a
paint company in the United States. He was 28 when he inherited the United
Breweries Group. In his 30, he popped into the limelight with his cola brand ‘thril’. UB
group was then the market leader in the liquor and processed foods business. In the
next couple of years, he sold o his company’s Pharmaceutical, batteries, food, and
beverages arm. He spent that money to get into a di erent market. On his son’s 18th
birthday in 2005, he launched king isher Airlines. It soon became India’s 2nd
biggest Airline. Coming years He Made huge transactions, but something was o .
Once known to be a “liquor baron” was now chased by ED and CBI. He had his
passport revoked and was now facing trials for his extradition by the government.

EARLY LIFE
Vijay Mallya was born in 1955 to an a luent business family as a son of the former
chairman of the United Breweries Group, Vittal Mallya and Lalitha Ramaiah. He was a
ruined kid, who had all sorts of battery-operated toys, which was a luxury then. He
graduated with an Honours in Bachelor of Commerce degree from the famous St.
Xavier's College, Kolkata. He was keenly interested in cars, the racing ones. He was a
national-level sportsman then, who was living and enjoying his life. During his college

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journey, he interned in his family’s business. After completing Post-graduation, he

went to the US and worked as an intern at the American part of Hoechst AG. Though
Vijay Mallya was born to humble parents, he never decided to settle for a quiet life like
his father. He had this ambition and a desire to do something bigger and
extraordinary. The unintended events unfolded and led him to carry the burden of his
father’s empire, an empire of 19,000 crore Rs.

THE BUSINESSMAN
His journey started with United Breweries, The UB Group Empire, which was already
an MNC business conglomerate, comprising over 60 companies and India’s largest
spirit maker. It was the work of his father, who had quietly acquired several companies
under the UB over a while. He became the chairman of the United Breweries Group in
1983 at the age of 28 followed by the death of Mr. Vittal Mallya, his father. As soon as

Source: tradebrains.in

he joined the business, he worked hard to grow the business and managed to
increase the overall turnover by around 64%, reaching US $ 11 billion in 1998-1999.
He was aspiring to be the catalyst of change in society, which saw liquor as taboo. He
wanted people to live that lifestyle, which was aspiring to the then middle class of
Urbans, especially in Bangalore. He portrayed the brand as a way of living and not the
product itself. Bangalore was the irst city to take that taste, which initially started with

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one pub followed by a number of them, depicting the success of his marketing
strategies. It was a time when the politics and morality led to the ban of alcohol
advertisements, but he then made his liquor brand ‘King isher’, do better and better
because what he was selling was the ‘King’s lifestyle’ and not the liquor. He was
famously called the lamboyant. He was already living a lifestyle of that of kings, being
dubbed as the “King of Good Times” that eventually became the tagline of King isher,
his last ride.

KINGFISHER
Fly the good times!! The tale starts with a dream of Vijay Mallya, who wanted to
do something magni icent. In a society, where people were not that open, Vijay would
walk courageously like a lamboyant. He would not be shy to show his money, since he
wanted to be recognized.

Source: buzzfeed.com

In this pursuit of recognition and all that he wanted to be, Vijay established King isher
Airlines in 2003. He bought 12 A320s and launched King isher Airlines with its irst
light on his son’s 18th birthday in May 2005. He worked meticulously upon his dream.
Aspiring to become India’s best airline, King isher took o delivering the best in its
segment, the low-cost carrier. Mallya wanted 130M middle class to have the taste of

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this lifestyle. He was so much into image building that he referred to the standard
economy class as the King isher class. The airline provided people with all new
experiences that none of them ever heard of. Mallya wanted the best, hence he
brought the best air hostess, outstanding food, the best leet of service, out-of-the-box
furnishing, and interiors to the airline. King isher made experience, luxury, and lifestyle
larger than life. Within a year of its launch, it became one of the best airlines, with over
a billion dollar aircrafts in order.

What went wrong?? A billionaire who built this extravagant multibillion-dollar

brand was now known to be a fraud. Why the “Good Time Airlines” went down? To put
it short ‘it was the mismanagement that later turned into a scam. The administration
was sincere but not competent.

To start at irst, King isher never had a full-time Managing Director or Chief Executive
O icer, which is one of the basics to start the business with. Mallya never appointed
an MD and when he appointed Sanjay Aggarwal as CEO, it was already too late to get a
hold. King isher’s air routes were signi icantly ine icient. It operated lights even on
non-pro itable routes. It seemed that it had an ego that ‘we go, where nobody goes’.

King shers’
Net Loss
0
Billion Rupees

-10

-20

-30
2008 2009 2010 2011 2012
Financial years
Source: reuters

The airline failed to execute a long-term strategy. The biggest problem with the airline
was that It had this unsustainable business model which was bound to fail. King isher
was a low-cost carrier to start with, however, it added premium class to it as well. It
was confused between a premium modal and a low-cost mode. When its premium

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class failed it suddenly brought in Deccan and started a mixed class. When Deccan
failed they switched back to premium. They kept on lipping strategies. To understand
this let us take a situation, You are selling a service for Rs. 6, which costs Rs. 7 in the
market and is being sold by others at Rs. 12. If you have funding of Rs. 50, you can
sustain for a short period but not for long period. King isher Repeatedly requested
banks to bail it out, in-fact Mallya met the then PM to ask for his help out.

The second blunder was its mistake of acquisition and expansion. From 2003 to 2012,
King isher never saw a green balance sheet. King isher in its lifetime has made a loss
of nearly 1$ billion dollars. It acquired Air Deccan in 2008 for a sum of nearly Rs. 550
crores. There was no need to acquire it, especially when it was a loss-making
company. They had it renamed King isher Red, thus leading to a rivalry between the
parent brand King isher Airline and the subsidiary brand. This was a poor strategy.

Source:

The market did not understand what was the di erence and the nature of the two
carriers, which ended up in splitting customers rather than adding new ones. The
airline had no experience and was nowhere close to pro its yet expanded
internationally. The international market had more competition, huge expenditure, and
low margins. It was a foolish act for a loss-making airline to enter that market. An
expansion without gross margin is committing suicide. With no liquidity, no
pro itability, no loan repayment capacity, no reserves, and surplus any business is
bound to crash.

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The last ride!! King isher played with its cash, it spent money on wrong
calculations and assumptions, while it was fast cash low with low pro it. India’s
business climate for the aviation market is not favorable and a poor business model in
that climate is bound to su er. Su ering from serious losses, Mallya still went ahead
with several acquisitions including Berger Paints, Best and Crompton, Mangalore
Chemicals & Fertilisers, Force India- Formula One team, Royal Challengers Bangalore,
and many others.

But what backed him up for these huge transactions? These expenses were met
through hefty loans. Then came the economic slowdown of 2008, which turned
everything upside down. It broke the backbone of the airline and all other companies.
He was already under heavy loans and with the global recession, he su ered massive
losses. Lower occupancy, slow ticket sales (given the fact that if an airline is running
with less than 75% occupancy means it is running at loss), currency depreciation, and
rise of crude oil prices leading to a surge in the prices of aviation fuel (given the fact
that fuel costs about 50% of the cost of the operations)- all these factors meant less
buying capacity. It turned out that King isher was not able to clear even the fuel
receipts of HP and IOCL. They were not able to pay airport charges with some airports
even refusing them to land the planes there.

To sustain in the aviation market one needs to have a deep pocket and loss absorption
capacity. However, King isher Breweries was doing well enough to sustain the fun and
enjoyment of Vijay Mallya. The brewery is a business of fun, but
aviation is a business of caution, and it was this miscalculation that
made him take non-feasible decisions. Mallya over some time was
able to take thousands of crore rupees from several public banks
even with the dirty balance sheet. This is all due to the bribery of
public o icials at the bank management, who were asked to
overlook the balance sheet of the King isher. Usually, banks give the
loan over collateral of the same amount of the loan, however in this
case bank gave loans to Mallya on items such as o ice stationaries,
printers, computers, etc. This made suspicion on the bank o icials who passed the
loans, but since SBI ended it too so it was seen as assuring. When this incident came

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into the limelight, investigations were carried out. It was found that a large chunk of
loan money was laundered into tax havens through shell companies. According to a
report the money was laundered to the U.K., U.S., Ireland, Switzerland, France, and
South Africa. He even used the loan sum to purchase the IPL franchise ‘RCB’ for a
hefty amount of Rs. 476 crores despite all the turmoils King isher was going through.

It was the third quarter of 2011-12 when it was on the brink of fall and it fell. It did not
pay the salaries of the sta for a period of 15 months. Dec 2011, the Mumbai Income
Tax Department froze accounts of King isher for non-payment of dues worth Rs. 70
crores. By the start of the 4th quarter of 2011-12, the airline was in a total loss of nearly
Rs. 7000 crores, with 50% of its aircraft grounded and along with its sta going on
strike. March 2012 International Air Transport Association asks travel agents to stop
booking tickets due to failure in settling dues. Later in that month, King isher
suspended its international operations. Events unfolded and lead aviation authorities
to revoke international light rights and domestic light slots for King isher in early
2013.

Oct 2012, DGCA - Directorate

General of Civil Aviation
suspended the license of
King isher, which forced the
airline to shut its operations.
Share prices went down and
lenders were trying to sell the
pledged shares of the UB
group of companies. Mallya
tried all sorts of revival be it
through talks with the aviation ministry or seeking investment from international
airlines, but all that e ort meant no gain. In 2014, the banks turned the loans into NPA,
which was public banks’ top non-performing asset worth Rs. 4000 crores.

August 2014, enters CBI to look into the matter through preliminary inquiry on IDBI
Bank. By the end of the 2nd quoter of FY 2014-15, various banks started declaring
Mallya as a wilful defaulter. On 2 March 2016, the consortium of 13 Indian Banks moved
the Debt Recovery Tribunal to recover its dues which included 90 billion Rs. owed by
its promoter Vijay Mallya. While the consortium requested the apex court to restrain
Mallya from escaping the country, it was seen that he had already lown o . Several
non-bailable warrants have been issued so far along with the seizer of King isher’s and
Mallya’s domestic and international assets by the agencies. Enforcement Directorate

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issued a warrant for crimes under the Prevention of Money Laundering Act, 2002.
Central Bureau of Investigation arrested the former chairman of IDBI Bank along with
some executives of King isher in early 2017. The Ministry of External A airs at the
request of the Ministry of Finance, the Government of India requested the extradition
of Vijay Mallya to the government of the United Kingdom in march 2017. He is currently
ighting a legal battle there to prevent his extradition. Meanwhile, the Government of
India has already sold o the assets to recover the loan sum and paid it back to the
lending banks.

Once known to be the King of Good Times is now the irst fugitive economic
o ender of the nation. He is now remembered by the same.

Umang Jain
SKG212E0163
BA Mathematics Hons.

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