cyrilroy21
9th Nov 2010, 14:45
New CEO Sanjay Aggarwal must draw on his understanding of the sector to steer the troubled airline out of the red.
Sanjay Aggarwal, the new CEO of Kingfisher Airlines, has a turbulent journey ahead. With debts totalling around Rs 7,500 crore and interest payments at 20 per cent of running the company, the airline is under constant threat that vendors – ranging from oil marketing companies to aircraft lessors – will pull the plug. Chairman & Managing Director Vijay Mallya has managed to keep vendors and bankers at bay for the time being, but Aggarwal will need to address serious structural issues to keep the airline flying.
Financial restructuring of a part of the company’s debt has been approved. The airline is also understood to be in the final stages of infusing much-needed equity — something that has eluded it for years. According to industry sources, US private equity firm Wilbur Ross may be looking to inject $150 million into Kingfisher in the near future, after it exited rival SpiceJet following Kalanithi Maran taking majority control in the company.
NOT-SO-GOOD TIMES
KINGFISHER AIRLINES (Rs CR)
Q1 FY11 Q1 FY10 YoY (%)
Income 1,640 1,272 29
Ebitda -259 -325 -
PAT -187 -237 -
"We look forward to a positive contribution from Sanjay in leading the growth and profitability of Kingfisher Airlines, whilst maintaining the highest level of service. He has a sound understanding of the Indian aviation industry and the various unique business imperatives in India," Mallya said recently while announcing Aggarwal’s appointment.
Indeed, Aggarwal will need to draw extensively on that understanding of the sector if he is to lift Kingfisher out of its present quagmire. While Kingfisher and Aggarwal declined to speak with Business Standard for this article, a cross section of industry experts concurred that Aggarwal has both the capability and experience to meet the challenge.
His immediate task is to create a team that will turn around the company in two years. He will also need the promoters’ help in cutting costs. Aggarwal is credited with steering SpiceJet into profits in FY10 – for the first time since its inception. Creditably, he made this possible in a two-year stint at the helm of the airline. "It was the team at SpiceJet that was key to turning around the company," said Kapil Kaul, CEO - Indian subcontinent & Middle East at Centre for Asia-Pacific Aviation - India.
Of course, helping SpiceJet fly out of the red has been increasingly buoyant market conditions. The domestic aviation market is improving rapidly and that could help Kingfisher as well. But running SpiceJet and Kingfisher are two different challenges because of their different business models – the former is a low-cost airline, while the latter a full-service carrier. Moreover, SpiceJet is a smaller airline, compared to the larger, more complex Kingfisher.
Aggarwal’s first task is to see that Kingfisher makes money, even as he tries to pay off debts. Amber Dubey, director, aerospace & defence at KPMG, said Aggarwal brought about operational efficiencies at SpiceJet and also built relationships with those running the airline. He helped maximise its yield, too. Spicejet, along with Indigo, is now considered the standard bearer in the low-cost segment. Aviation experts believe Aggarwal’s ability to prune costs makes him an ideal choice at Kingfisher, which is saddled with a high cost structure because of its premium positioning.
Kingfisher offers the highest number of flights offered by any single airline network in India. It flies to 56 cities in India and eight international destinations. It has over 336 daily departures with a fleet of 66 aircraft.
"Many expect Sanjay to bring in a better balance between style, cost efficiency and margin enhancement at Kingfisher," added Dubey. For the last two months, Kingfisher has had the highest seat load factor of over 85 per cent. While there are many factors behind this, his arrival is timely, given that the high-traffic third quarter started in October 2010.
However, the question in the minds of many observers is whether he can perform a repeat of his SpiceJet turnaround at Kingfisher. The answer depends on whether Mallya will relax his passionate grip over the airline and give Aggarwal the autonomy and freedom to execute his ideas. And therein lies the challenge.
Says Devesh Agarwal, an observer of Indian aviation: "I’ve had the pleasure of interacting with Sanjay on many an occasion. His pragmatism, lateral out-of-the-box thinking and professionalism is without parallel."
At both of his other major and very successful businesses – United Spirits Ltd and United Breweries Ltd – Mallya has very strong and capable CEOs in the form of Vijay Rekhi and Kalyan Ganguly. Sanjay Aggarwal (who will report directly to Mallya) comes from the same mould of capable professionals, Agarwal notes.
With his background at US Airways, Marriott International and private jet provider Flight Options, Aggarwal brings a unique combination of hospitality, transportation, style and panache, that blend well with the product positioning at Kingfisher. He is also a hard-nosed business operator, who has turned ailing airlines around. These are skills that Kingfisher desperately needs.
A rough flight ahead for Kingfisher's pilot (http://sify.com/finance/a-rough-flight-ahead-for-kingfisher-s-pilot-news-equity-kljb53fgcbg.html)
Sanjay Aggarwal, the new CEO of Kingfisher Airlines, has a turbulent journey ahead. With debts totalling around Rs 7,500 crore and interest payments at 20 per cent of running the company, the airline is under constant threat that vendors – ranging from oil marketing companies to aircraft lessors – will pull the plug. Chairman & Managing Director Vijay Mallya has managed to keep vendors and bankers at bay for the time being, but Aggarwal will need to address serious structural issues to keep the airline flying.
Financial restructuring of a part of the company’s debt has been approved. The airline is also understood to be in the final stages of infusing much-needed equity — something that has eluded it for years. According to industry sources, US private equity firm Wilbur Ross may be looking to inject $150 million into Kingfisher in the near future, after it exited rival SpiceJet following Kalanithi Maran taking majority control in the company.
NOT-SO-GOOD TIMES
KINGFISHER AIRLINES (Rs CR)
Q1 FY11 Q1 FY10 YoY (%)
Income 1,640 1,272 29
Ebitda -259 -325 -
PAT -187 -237 -
"We look forward to a positive contribution from Sanjay in leading the growth and profitability of Kingfisher Airlines, whilst maintaining the highest level of service. He has a sound understanding of the Indian aviation industry and the various unique business imperatives in India," Mallya said recently while announcing Aggarwal’s appointment.
Indeed, Aggarwal will need to draw extensively on that understanding of the sector if he is to lift Kingfisher out of its present quagmire. While Kingfisher and Aggarwal declined to speak with Business Standard for this article, a cross section of industry experts concurred that Aggarwal has both the capability and experience to meet the challenge.
His immediate task is to create a team that will turn around the company in two years. He will also need the promoters’ help in cutting costs. Aggarwal is credited with steering SpiceJet into profits in FY10 – for the first time since its inception. Creditably, he made this possible in a two-year stint at the helm of the airline. "It was the team at SpiceJet that was key to turning around the company," said Kapil Kaul, CEO - Indian subcontinent & Middle East at Centre for Asia-Pacific Aviation - India.
Of course, helping SpiceJet fly out of the red has been increasingly buoyant market conditions. The domestic aviation market is improving rapidly and that could help Kingfisher as well. But running SpiceJet and Kingfisher are two different challenges because of their different business models – the former is a low-cost airline, while the latter a full-service carrier. Moreover, SpiceJet is a smaller airline, compared to the larger, more complex Kingfisher.
Aggarwal’s first task is to see that Kingfisher makes money, even as he tries to pay off debts. Amber Dubey, director, aerospace & defence at KPMG, said Aggarwal brought about operational efficiencies at SpiceJet and also built relationships with those running the airline. He helped maximise its yield, too. Spicejet, along with Indigo, is now considered the standard bearer in the low-cost segment. Aviation experts believe Aggarwal’s ability to prune costs makes him an ideal choice at Kingfisher, which is saddled with a high cost structure because of its premium positioning.
Kingfisher offers the highest number of flights offered by any single airline network in India. It flies to 56 cities in India and eight international destinations. It has over 336 daily departures with a fleet of 66 aircraft.
"Many expect Sanjay to bring in a better balance between style, cost efficiency and margin enhancement at Kingfisher," added Dubey. For the last two months, Kingfisher has had the highest seat load factor of over 85 per cent. While there are many factors behind this, his arrival is timely, given that the high-traffic third quarter started in October 2010.
However, the question in the minds of many observers is whether he can perform a repeat of his SpiceJet turnaround at Kingfisher. The answer depends on whether Mallya will relax his passionate grip over the airline and give Aggarwal the autonomy and freedom to execute his ideas. And therein lies the challenge.
Says Devesh Agarwal, an observer of Indian aviation: "I’ve had the pleasure of interacting with Sanjay on many an occasion. His pragmatism, lateral out-of-the-box thinking and professionalism is without parallel."
At both of his other major and very successful businesses – United Spirits Ltd and United Breweries Ltd – Mallya has very strong and capable CEOs in the form of Vijay Rekhi and Kalyan Ganguly. Sanjay Aggarwal (who will report directly to Mallya) comes from the same mould of capable professionals, Agarwal notes.
With his background at US Airways, Marriott International and private jet provider Flight Options, Aggarwal brings a unique combination of hospitality, transportation, style and panache, that blend well with the product positioning at Kingfisher. He is also a hard-nosed business operator, who has turned ailing airlines around. These are skills that Kingfisher desperately needs.
A rough flight ahead for Kingfisher's pilot (http://sify.com/finance/a-rough-flight-ahead-for-kingfisher-s-pilot-news-equity-kljb53fgcbg.html)