Merger Between Kingfisher and Deccan Airlines

8/12/2019 Merger Between Kingfisher and Deccan Airlines

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MERGER BETWEEN KINGFISHER

AND DECCAN AIRLINES


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INTRODUCTION-KINGFISHER AIRLINES

Kingfisher Airlines is a private airline based in Bangalore,

India.

Kingfisher Airlines started its operations on May 9, 2005, with

a fleet of 4 brand new Airbus - A320, a flight from Mumbai to

Delhi to start with.

The airline operates on domestic as well as international

routes, covering a number of major cities, both in and outside

India.

In a short span of time, Kingfisher Airlines has carved a niche

for itself in the civil aviation industry.


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Kingfisher engaged earlier in the

following business

Scheduled Air

Transport

Services

Scheduled Air

Transport

Services

Commercial

AirlineBusiness

Ground handlingservices

Training academy


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Merger Motive

Vijay Mallaya had a vision

His successful Kingfisher Airlines had

completed a merger agreement with low cost

carrier airlines Deccan Aviation on May, 2007.

With this deal he planned to become the

dominant low cost carrier in the country


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INTRODUCTION-DECCAN AVIATION

Deccan Aviation, promoted by Capt. G.R. Gopinath, Capt. K.J.

Samuel and Capt. Vishnu Singh Rawal.

It was initially incorporated as a private limited company onJune 15, 1995 in Karnataka with the main object of pursuing

chartered aviation services both for commercial and non

commercial purposes in India and to provide all aviation

related services.

It was converted into a public limited company in 2005.


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Deccan Aviation-Mission

To demystify air travel in India by providing

reliable low cost and safe travel to the

common man by constantly driving down the

air fares as an ongoing mission


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Deccan was engaged in earlier in the

business

Scheduled Air TransportServices


Commercial AirlineBusiness

Non -Scheduled AirTransport Services


Charter ServicesOperations


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Market share data

Airline Percentage

Indian Airlines 28%

Jet Airways 35%

Air Sahara 12%

Air Deccan 11%

King Fisher 6%

Spice Jet 5%

Others 3%

Total 100%


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Kingfisher & Air Deccan Merger-

Key Features

On 1st June 2007, the Board of Air Deccan approved the

allotment of equity share of 26% to UB group & its nominees.

The shares were allotted at Rs.155 per share approximately a

10% premium for the current market price (CMP). The UB

group made the money in two phases: Rs.150 Crore as initial

investment & Rs396 Crore at the on or before the end of June.

Once the investment process is complete, the UB group will

become the single largest share holder in the Deccan Aviation

ltd.

UB group will make an open offer to acquire minimum 20% to

all shareholders of Deccan aviation at a price of Rs.155.


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The Kingfisher-Air Deccan group will be the largest domestic

airline with a fleet of 71 aircraft including 41 Airbus aircraft and

30 ATR aircraft.

For the near future, Kingfisher will continue to serve thecorporate and business travel segment while Air Deccan will

focus on serving the low fare segment but with improved

financial prospects for both carriers.

Kingfisher Airlines and Air Deccan will, henceforth, work veryclosely together to exploit the significant synergies that exist in

the areas of operations and maintenance, ground handling,

vastly increased connectivity, feeder services, distribution

penetration etc.


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Kingfisher & Air Deccan-Merger Advantage

The fresh equity capital will allow the Deccan to pay the loans

& to fund various infrastructure projects.

Reduction of cost by sharing infrastructure

The merger ensures that Kingfisher does not need to invest

more in infrastructure or in spare planes.

The combined share of the two carriers will increase the

Market share.

As per the existing laws Kingfisher Airlines would not be ableto operate on international routes until 2010. However Air

Deccan would be eligible from the second half of next year as

its five-year ceiling is coming to an end.


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Kingfisher & Air Deccan- Synergies

Operational Synergies

o Kingfisher and Air Deccan have exactly the same fleet of

aircraft, the same equipment in terms of engine, in terms of

brakes and in terms of avionics.o The airlines will achieve perfect synergies in the backend

while preserving the front-end and that will enable both

Deccan and Kingfisher to be profitable.

o Apart from ground handling synergies, there is a whole hostof items where duplication is completely unnecessary and can

now be avoided.


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Infrastructure Synergy

o Kingfisher and Air Deccan will now be able to access ground

infrastructure at 65 airports, of which more than 28 are common

to both the set ups.

o The new entity will have over 71 aircraft.

Route Synergy

o On the most lucrative of routes, New Delhi-Mumbai, that on its

own accounts for more than half of India's 33 million passenger

traffic, the two carriers will now account for a total of 155 flights.

o According to Dr.Mallya kingfisher is considering swapping or

switching in coordination with each other to rationalize the fleet

structure.


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Investment synergy

o Both airlines have orders for about 90 aircraft currently placed

with European aircraft major, Airbus Industries.

o Kingfisher has placed orders for new aircrafts at higher prices as

compared to Air Deccan.


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7:3 Swap ratio for kingfisher & Deccan

merger

The Kingfisher Airlines-Deccan Aviation merger swap ratio has

been fixed at 7:3.

Deccan Aviation's name will be changed to Kingfisher Airlines

and the merger will be effective from April 1, 2008, subject to

statutory approvals.

The Deccan-Kingfisher combine commands a market share of

just over 29.3 per cent (source: DGCA) and accounts for 50

per cent of deployed capacity in the south.


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Deccan Losses

For the quarter ended December 31, 2007, Deccan posted a

net loss of Rs 190.86 crore (Rs 1.91 billion) on revenues of Rs

567.63 crore (Rs 5.68 billion).

Kingfisher had posted a loss of Rs 575.8 crore (Rs 5.76 billion)

in FY07, on a turnover of Rs 1,553 crore (Rs 15.53 billion) and

it is believed that the airline has accumulated losses of about

Rs 1,200 crore (Rs 12 billion), which amounts to a negative net

worth of Rs 385 crore (Rs 3.85 billion).

Deccan shares lost 1.81 per cent on the Bombay StockExchange to close at Rs 173.90.


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Looking Beyond.

The merger of Kingfisher with Deccan Aviation will allow

Kingfisher to fly overseas from May when Deccan completes

five years of existence.

This is important as markets like the Gulf region can be

lucrative, particularly when there's excess capacity in the

home market.


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Are these Airlines MergersWorking????


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The answer is NO

Mars vs venus.

Raise in fares.

Both loss making entities.o First Reason is Subjectivity: The business investor cant resist

such a glamorous business.

o The second Reason is objectivity: Pricing pressure exerted byother low cast carriers (LCC)


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Merger Between Kingfisher and Deccan Airlines

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