KTM Goes Bankrupt?

Austrian motorcycle manufacturer KTM AG, which also has large scale operations in India through its subsidiary operated by Bajaj Auto, has just filed for bankruptcy. In other words, its liabilities are now more than its assets. The company just announced an emergency restructuring on November 29th 2024, which is meant to give it 90 days of time to raise money and avoid total shutdown.

Now, what happens to KTM’s Indian operations?

For now, it’s business as usual. KTM’s Indian operations – run by Bajaj Auto – are unaffected from the bankruptcy and restructuring proceedings of its parent organization in Austria. However, if the emergency restructuring does not work, all bets are off.

Indian operations of KTM could also come under a cloud as much of new product development, and research and development work happens in Austria. If the main Austrian company goes under and is shut down, the future of KTM subsidiaries including the Indian operation will come under trouble.

KTM India plans to launch the all-new 390 Adventure models and its derivatives at the upcoming India Bike Week, scheduled to happen next week. Weeks ago, KTM launched a slew of its big bike range in India.

Meanwhile, here’s Bajaj Auto’s statement on KTM India’s operations,

What really is going on at KTM AG?

KTM AG now has a market capitalization of just 345 Million Euros after share prices got hammered by 80 %, falling from 89.6 Euros in 2021, to just 9.5 Euros recently.

The massive drop in share prices means that KTM AG’s liabilities of 1.4 Billion Euros is far greater than its total share value (345 Million Euros). NewAtlas, quoting Cornelia Wesenauer, insolvency expert for the Alpine Creditors Association (AKV), estimates that KTM’s total liabilities could hit 2.5-3 Billion Euros (Rs. 22,500 to 27,000 Crore In Indian money).

Cornelia Wesenauer, insolvency expert for AKV, had this to say,

KTM AG enters emergency restructuring

While filing for insolvency, KTM AG has also gone into emergency restructuring. Within the next 90 days, KTM AG management and Austrian government officials will figure out ways to raise money and continue servicing the ballooning debt (by re-negotiating terms with creditors).

If KTM AG fails to fulfil its financial obligations by the end of 90 days (end February 2025), it will be shut down completely, and its assets will be sold in order to pay back creditors that include banks, suppliers and employees (through salaries). Things look quite grim as KTM will have to raise at least a Billion Euros (about Rs. 9,000 crore) within the next 90 days to stay afloat.

KTM’s attempts to raise money haven’t worked so far

KTM’s troubles mounted earlier this year, when it registered a negative cash flow or about 414 Million Euros for the first half of 2024, from a positive cash flow of 52 Million Euros in the first half of 2023.

In other words, in 2024, KTM has been spending more than it has been earning, and this is not sustainable beyond a point. That point seems to be now. And the next 90 odd days will determine whether KTM survives.

KTM has been trying to raise money from Austrian energy drink major Red Bull and Indian automotive giant Bajaj Auto, two companies with which it has been closely associated. KTM’s racing efforts have been in association with Red Bull, and Bajaj Auto holds a sizeable stake in KTM. KTM’s efforts to raise money from Red Bull and Bajaj haven’t worked so far, for reasons that aren’t public yet.

Expensive acquisitions and aggressive expansion to blame?

KTM has gone from a company that used to build 6,000 motorcycles a year employing 160 people when Mr. Stefan Pierer bought it in 1992, to a company that builds 1,000 motorcycles each day, employing over 6,000 employees. KTM also became Europe’s biggest motorcycle maker beating established rivals such as BMW Motorrad and Ducati.

However, sales have been flagging. In the first half of this year, sales were down 27 %. KTM, which also owns Swedish motorcycle brand Husqvarna, acquired GasGas Motorcycles and Italian sportsbike brand MV Agusta recently. These acquisitions – said to be expensive – are said to have increased pressure on KTM significantly.

Then, there’s the matter of KTM producing a large number of bikes to meet the post-COVID demand. However, slow sales have meant an inventory pile up, and dealers are not ordering fresh bikes. This has led to KTM having to slow down production. The motorcycle maker even cut over 300 jobs recently at its Mattighofen factory in Austria.

Unreliability has also been a major concern on bigger KTM motorcycles. For instance, the 790 and 890 and 901 KTM models have faced excess camshaft wear, head gasket issues and various niggles. Many blame the unreliability to KTM’s decision on tying up with Chinese motorcycle maker CF Moto, which now produces engines for KTM’s big bikes.

Meanwhile, KTM’s top management – CEO Stefan Pierer and newly appointed Co-CEO, Gottfried Neumeister, who’s also said to be a financial restructuring expert, have assured customers that bike sales, parts sales and service will continue uninterrupted,

On top of all this, Europe is KTM’s biggest market, and economic conditions in that part of the world are quite bad for now. Multiple countries in the European Union are facing significant economic slowdowns, and the lack of growth is making consumers cut back on discretionary purchases. Big motorcycles – bought mainly for leisure riding – have now become victims of the cut back in consumer spending, and KTM, like many other motorcycle makers, is particularly hard hit.

KTM AG Employees in Austria will get only partial salary, and no Christmas bonus

It’s going to be a not-so-merry Christmas for over 3,000 employees of KTM AG in Austria, as the company has decided to offer only ‘pre-negotiated partial wages’, and suspend Christmas bonuses owing to its precarious financial position. At this point, the employees will simply be hoping to keep their jobs at the end of the 90 day emergency restructuring.