Kingfisher Airlines: Recommendation Review

In the aftermath of the Income Tax Department freezing Kingfisher Airlines’ (KFA) bank accounts over non-payment of its tax dues and the Director General of Civil Aviation (DGCA) pulling up the top management over its flawed operational plans, we, at DSIJ, had recommended in DSIJ Vol. 27, Issue No. 6 (dated February 27-March 11, 2012) that investors sell the shares of the company. Since our recommendation, the counter has plunged by more than 47 per cent to Rs 13.25 per share at present.

Despite all the efforts taken by the airliner, its promoter and promoter groups and its bankers, KFA continues to dither under pressure from its high debt and the consequently high losses. With more than half of its fleet grounded and the airline facing a severe shortage of pilots and other staff, we believe that it is time KFA shuts shop and puts an end to its ill luck.

Even the government’s attempt to allow direct import of aviation fuel and allowing FDI inflows into the aviation sector would prove futile for a player like KFA. Mowed down by a colossal debt burden and battered brand equity, we feel that no foreign airliner would want to pick up equity in the company. On the valuations front, based on the Altman’s Z-score formula used to predict corporate defaults and measure the financial distress status of companies, we believe that KFA, with a score of -0.64, gives a clear indication that its days are numbered. Investors may continue staying away from the stock. (To read further on our Altman Z-score prediction, we suggest that you read the article Is Kingfisher Airlines Heading Towards Bankruptcy? on our website)