What is Vijay Mallya’s Scam? Vijay Mallya Case Study
Have you heard about Kingfisher? Yes, you may have heard the name of the kingfisher because it is the most prominent brand in beer.
Kingfisher Owns by United Spirits. Vijay Mallya is the chairman of United Spirits.
Mallya owes a Rs 9,000 crore from 17 Indian banks and is accused of fraud and money laundering cases in the country.
What’s in it for me
- Kingfisher Overview
- Who is Vijay Malaya
- What is Vijay Mallya Scam
- Loans Taken by Vijay Malay
- The downfall of Kingfisher Airlines
- RCB’s Connection With Vijay Mallya
1. Kingfisher Company Overview
Kingfisher is an Indian brand owned by United Breweries Holdings Limited (UBHL) or UB Group Bangalore based Indian Company. UB group has several businesses but its core business is beer, aviation, and investment.
UB Group markets its beer product under the brand name of kingfisher, UB groups also owns several brands of beers. Kingfisher was launched in 1978 and now it is the largest beer producer of India with market shares.
Kingfisher beer is also sold in many other countries. UB group also launched Kingfisher airlines in India. Till December 2011 Kingfisher Airlines had the second largest market share in India’s domestic air travel. The company closed its operations in India after its inspections.
2. Who is Vijay Mallya?
Vijay Mallya is an Indian businessman and former member of Parliament (Rajya Sabha). Vijay Mallya also owns Royal Challenger Banglore – IPL Team. Vijay Mallya became the chairman of United Breweries Holdings Limited (UBHL) in 1983 at the age of 28 after his father’s death. Vijay Mallya grew its company rapidly.
From 1998 to 1999, Vijay Mallya grew the turnover of the company by 64%. He also Diversified the business of the company by acquiring many other companies. He acquired Berger Paints which is an Indian Paint company.
Vijay Mallya was also elected as a member of parliament twice from Karnataka. The company also achieved the milestone of selling 10 crores cases in India and by this achievement, the company became the second-largest spirits company in India.
All this achievement was possible by the control of Vijay Mallya’s Chairmanship. Kingfisher Airlines was launched by Vijay Mallya in 2015.
3. What is Vijay Mallya’s Scam
Vijay Mallya wants to expand his liquor and Airline business. His advisors advise him not to do this but despite his advisor’s advice, he does the same. He sold another company formed by his father to fund its airline company.
Vijay Mallya’s kingfisher becomes India’s no.1 domestic airline company and first choice of every passenger. Due to some restrictions, the Indian Government did not allow kingfishers to fly international flights. To fly international flights he leveraged United Spirits or United Breweries to buy Deccan Air which is a loss-making company and merged it with Kingfisher Airlines but it could not make the profits thus in 2010 Malaya’s this business was in heavy loss.
To run this business he continuously took loans from banks. He took loans of 9000 crores by 17 banks. Although SBI has declared them as bankrupt other banks kept lending him loans because he was a member of Rajya Sabha and some parties supported him. His company kingfisher also -held service tax of passengers, PF, Income Tax of Employees, but did not submit to the PF or IT authorities.
The company also did not pay the salary of its employees or ran out of cash. In 2012 the company had to shut down its operation. Vijay Mallya had a loan of 9000 from different banks and he denied to pay this loan.
The Company United Breweries forced Vijay Mallya to resign the post of chairman of united spirits and paid him $75M for a severance payment, but Indian courts blocked this payment.
SBI and other banks filed a case against Vijay Mallya but before taking any action against Vijay Mallya he flew away to the United Kingdom. There is also a side story of Vijay Mallya that he offers banks to pay 4000 crores for settlement but banks refused their proposal. Banks demand at least 4900 crores which a principal amount furthermore banks are demanding interest as well.
4. Loans Taken by Vijay Mallya
|Rs 1,600 crore||SBI|
|Rs 800 crore||PNB|
|Rs 800 crore||IDBI|
|Rs 650 crore||Bank of India|
|Rs 550 crore||Bank of Baroda|
|Rs 430 crore||United Bank of India|
|Rs 410 crore||Central Bank of India|
|Rs 320 crore||UCO Bank|
|Rs 310 crore||Corporation Bank|
|Rs 150 crore||State Bank of Mysore|
|Rs 140 crore||Indian Overseas Bank|
|Rs 90 crore||Federal Bank|
|Rs 60 crore||Punjab & Sind Bank|
|Rs 50 crore||Axis Bank|
5. Failure Reason of Kingfisher Airlines
1. Lack of Business Strategy
The first reason for the failure of Kingfisher airlines is the lack of strategy. First, the company launched an economic class service later they shifted to luxury class After that they shifted as a low-cost airline.
As the company continuously changes its targeted audience, passengers lose interest in this airline. The other issue in their business strategy is that they do not focus on Profitable routes.
2. Lack of Management
The other failure of Kingfisher airlines is that Vijay Mallya involved too much in his airline business. Kingfisher doesn’t have any long term CEO or MD. Management is an important part of any business whether its failure or success.
3. 2008 Recession
There are not all internal faults in the failure of Kingfisher airlines; there are some external factors too. The other reason for failure in Kingfisher airlines is the 2008 recession which plays an important role in the failure of Kingfisher airlines.
The recession impacted the whole world and also the aviation industry. Due to the recession, there is high inflation in fuel prices or airport charges. All of these factors impact the health of Kingfisher airlines.
4. Air Deccan
As we have already discussed the acquisition of Air Deccan which is a low-cost airline company that was acquired by Kingfisher airline. In the Begging, Vijay Mallya treated both as separate companies.
There was a time when the flight of both companies flew at the same time but later they decided to cancel the flights of Air Deccan but the customers of Air Deccan did not transfer to Kingfisher Airline They transferred to their competitor.
5. High Operational cost
The other external reason for the failure of kingfisher airline is that there is a high operational cost in the airline industry as compared to other industries. Airline companies require licenses for came the next thing that is a merger with Air Deccan, which the routes, investment in the aircraft maintenance, salaries were a low-cost airline.
There is also a high price of fuel and the company did not able to recover its cost or continuously made loose. There is also great competition in the airline industry that’s why this company offers low cost but they forget if they did not earn a good margin their company will be closed.
I hope you learn very important lessons from Vijay Mallya Case Study. Share this case study with your friends.
6. RCB’s Connection With Vijay Mallya
RCB is an IPL franchises team that was founded by United Spirits in 2008. Royal Challenger Bangalore also promotes its brand Kingfisher till 2013 but in 2014 no liquor brand was promoted by RCB.
United Sprites Wholly owns the RCb thus Vijay Mallya Resigned from United Sprits’s chairman he also resigned from RC’s Director Position. After Vijay Mallya Financial scandals Amrit Thomas became the chairman of the Royal Challengers and RCB changed the team logo. RCB’s holding company Royal Challengers Sports Pvt Ltd (RCSPL) is owned by United Spirits.
United Spirits now owned by the British beverage company Diageo, is the largest shareholder in RCSPL. Diageo Acquired United Sprits in 2014. Before Acquiring United Spirits Diageo has conducted an investigation in which they found financial irregularities of t Rs 1.15 billion (Rs 115 crore). USL’s management revealed that Rs 1.15 billion had been “potentially diverted from RCSPL. In 2019, the company earns more than 10% of its operating profits Through RCB While RCB performed Very Bad in the season.
7. Weakness & Strength
Here is weakness & strength of Kingfisher Airlines
1. Strong Reputation in Consumers mind
2. Kingfisher’s Parent Company is UB Group which is the Most Trusted Company in India
3. Kingfisher is awarded as a one of the most Premium Domestic Airline in India which creates a good image of the company among passages
4. Kingfisher Airlines Provides Quality service to its passengers
1. Company is Competing With Brands because there is high competition in the industry
2. Company Did not able to achieve to Breakeven point
3. Company has high debt
4. The company Was not able to cover is cost while the company charges a high price from its passengers.