Ex-King of Good Times: Vijay Mallya

Ex-King of Good Times:
Vijay Mallya

Neil Joshi

BSCI635 – Leadership & Ethics

By – Prof. Brian P. McGilvray

Pepperdine University

Graziadio School of Business & Management

October 10, 2017

Table of Contents

Abstract        3

Timeline        4

Ethical Dilemmas        7

Vijay Mallya        7

Finance Ministry and Government Officials        9

IDBI Officials        10

Current Scenario        11

Course Reflections        12

Personal Reflection        14

Conclusion        15

References        16

Abstract

In October 2012, the first arrest warrant was issued against the now infamous business tycoon, Vijay Mallya for defaulting on loan payments of more than Rs. 9,000 crore (~ $1.3 billion). To put this in perspective, the state-run banks get around Rs. 14,000 crores from the central government as annual capital infusion. We will be discussing what events lead up to this arrest warrant and what is the current situation on Vijay Mallya.

This case is going to discuss about three perspectives and the ethical dilemma faced by the decision makers at that point. The three perspectives are from Vijay Mallya and his board of directors, the politicians close to Vijay Mallya who were influencing the power of their positions and the managers of the public-sector banks who approved the loans to Mr. Mallya and his companies.

Timeline

2005

In 2005, Vijay Mallya, Chairman of United Breweries (Holdings) Limited, establishes Kingfisher Airlines as a premium, state-of-the art brand.

2006

In 2006, Kingfisher Airlines approached the Industrial Development Bank of India (IDBI) seeking funds to purchase aircrafts for Kingfisher Airlines. IDBI denied the loan because of their previous run-in with Vijay Mallya in the Mangalore Chemicals and Fertilizers acquisition.

2008

Following a good year in 2007, Vijay Mallya led Kingfisher Airlines acquired the almost bankrupt Air Deccan. United Breweries Limited signed a deal to pay Rs.550 crores for a 26% stake. Because of heightened spike in oil prices and the stress of working a high-cost and low-cost airlines, KFA accumulated a debt of Rs.930 crores. Meanwhile, KFA goes abroad, with flight between Bengaluru and London.

2009

The company continues to enjoy popularity and IDBI agrees to approve a loan of
Rs.900 crores to Kingfisher Airlines. Behind the scenes, KFA now owes a debt of
Rs.5,665 crores. Its net losses widened from Rs.188 crores in 2007-08 to Rs.1,608 crores in 2009. The losses for KFA resulted in lay-offs of more than 100 pilots. All this while, the airline industry is staggering due to the rise in fuel prices. In 2008, the global aviation industry estimated losses of about $5.2 billion.

2011

KFA keeps on piling huge losses and now owes a debt of over Rs.6,500 crores. Due to non-payment of taxes and other governmental dues, KFA’s license to operate is confiscated. As a result, KFA stops paying its employees’ salaries. On the contrary, Vijay Mallya had been drawing salaries of Rs. 33 crores per annum, enjoying an extravagant lifestyle and became a Member of Parliament for the Rajya Sabha, the lower house. KFA owes Rs.3,000 crores to its 3,000 employees in salaries and almost $1 billion to IDBI and SBI (State Bank of India). Vijay Mallya is constantly trying to find an investor to save the airlines.

2012

KFA employees started protesting at various cities across India due to non-payment of salaries which caused delays and often the flights were cancelled. The Ministry of Civil Aviation closed its doors on KFA by ruling out any bailout schemes. The loses have now crossed Rs.2,300 crores and the company was now well over Rs.7,000 crores of debt, which it owed a consortium of 17 banks led by SBI. The first arrest warrant is issued against Vijay Mallya and KFA Directors for failing to appear in a case for non-payment of airport charges. By this point, Vijay Mallya failed to get a foreign investor and analysts assumed that an infusion of Rs.3,000 crores was required by United Breweries group, led by Vijay Mallya, to get the airlines operational again. On the other hand, Diageo, the British multinational alcoholic beverages firm, agreed to acquire 53.4% stake in Vijay Mallya led United Spirits Limited (USL) for Rs.11,166 crores.

2014

By now the net worth of Kingfisher Airlines has gone down to negative Rs.12,919 crores. Finally, Vijay Mallya said he won’t be able to pay the salaries of KFA employees. While the auditors were red-flagging KFA, Forbes released the Richest Indians’ list and Vijay Mallya was on the 84th rank. After declaring KFA and its four directors, including Vijay Mallya, as willful defaulters, United Bank of India (UBI) declared United Breweries Holdings as a willful defaulter, which was named as the guarantor for KFA. The same suit was followed by rest of the banks in the consortium.

2015

Few of Vijay Mallya’s properties have been possessed by the 17-bank led consortium. A new CBI investigation was started on why IDBI officials agreed to give a loan of Rs.950 Crores to KFA even though the company was performing poorly. It is now that the Finance Minister announces that KFA owes a debt of Rs.9,100 crores. The Service Tax Department approaches the Bombay High Court to seize Vijay Mallya’s passport in a plea to stop him from escaping the country. But, by that time Vijay Mallya was already taking refuge in London.

Ethical Dilemmas

There are three key scenarios we need to scrutinize for ethical dilemmas faced by the decision makers.

Vijay Mallya

The first is the case of Vijay Mallya. Vijay Mallya was born with a silver spoon and inherited the liquor business from his father. He started Kingfisher Airlines to commemorate his son, Siddharth Mallya’s birthday. He was known to have a flashy and flamboyant lifestyle, was big on social appearances and keeping a high profile.

His ethical dilemma concerns with the 2009 incident where IDBI agreed to approve the loan of Rs.950 crores to a failing company with negative investment rating.