This document discusses the merger between Kingfisher Airlines and Air Deccan in India in 2007. It provides background on both airlines and outlines the key details of the merger deal, including Kingfisher acquiring a 46% stake in Air Deccan for Rs. 968 crores. The rationale for the deal included achieving operational, infrastructure, route and investment synergies to help both airlines be profitable and expand in the growing Indian market. However, the deal also faced some constraints from regulatory authorities.
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Kingfisher deccan deal
1. Templates
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2. Agenda
1 KingFisher Airlines
2 Air Deccan
3
What kicked the deal?
4 The rationale
5
Deal in detail ahead and replace it
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6 The financial analysis
7 Constraints and Issues
8 The Market reactions
3. 1
KingFisher Airlines
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4. Kingfisher Airlines
• Kingfisher Airlines is a private airline based in
Bangalore, India. Currently, it holds the status of India's
largest domestic airline, providing world-class facilities
to its customers.
• Owned by Vijay Mallya of United Beverages Group,
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 currently
operates on domestic as well as international routes,
covering a number of major cities, both in and outside
India.
5. Kingfisher Airlines
• Kingfisher Airlines proved to be a stiff competition for
other domestic airlines of India, with its brand new
aircraft, stylish red interiors, stylishly dressed cabin
crew and ground staff.
• The airline introduced in-flight entertainment (IFE)
systems, for the first time to Indian consumers. The IFE
systems were provided on every seat, even on the
domestic flights.
• However, it faced a worsening economic scenario in
2008.
6. 2
Air Deccan
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7. Air Deccan
• A wholly owned subsidiary of Deccan Aviation, Air
Deccan, is India’s first low cost carrier.
• Deccan was known popularly as the common man's
airlines. Continuing this trend even now, Simpli fly
Deccan sold air tickets for as low as 500/-
• Deccan Aviation, promoted by Capt. G.R. Gopinath,
Capt. K.J. Samuel and Capt. Vishnu Singh Rawal, was
initially incorporated as a private limited company on
June 15, 1995 in Karnataka with the main object of
pursuing chartered aviation services.
• It was converted into a public limited company in 2005.
8. 4 The Rationale
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9. • To start overseas business
• Expand the business and reduce the competition
• Survive from the losses (577 Crore loss)
• Competition from low-cost airlines
• Market share
10. • To make profits & overcome losses (418 Crore loss)
• Competition
• Unviable pricing
• Ever Increasing Cost and cash crunch
11. Operational Synergies
• Kingfisher and Air Deccan had exactly the same fleet of
aircrafts which provides a huge opportunity on saving in
engineering and maintenance cost.
• The airlines will achieve perfect synergies in the while
preserving the front-end and that will enable both
Deccan and Kingfisher to be profitable.
• Increasing market share(32-34%)
12. Infrastructure Synergies
• 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.
• The new entity will have over 71 aircrafts.
13. Route Synergies
• 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.
• Have both direct and indirect connectivity to the US,
Europe and different Asian regions
• Received in writing slots to operate flights in San
Francisco, JFK (New York) and Heathrow (London)
• Also applied for Mumbai-Hong Kong, Mumbai-London
and Delhi-Kathmandu routes.
14. Investment Synergies
• Both airlines have orders for about 90 aircraft currently
placed with European aircraft major, Airbus Industries.
• Kingfisher has placed orders for new aircrafts at higher
prices as compared to Air Deccan. The alliance with Air
Deccan may provide it the opportunity to renegotiate
its rates with the manufactures thereby saving
substantially.
16. The deal…
• 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.
17. The deal…
• UB group had to make an open offer to acquire an
additional 20% stake costing 418 Crores
• Total deal size = 968 Crores for 46% stake
• The UB group became the single largest share holder in
the Deccan Aviation ltd.
18. The deal…
• Kingfisher : Deccan Airlines shares swap ration 7: 3
• Cash Paid = Rs.550Crs + 418Crs = Rs.968Crs
• Present Value of 46% stake = 62316254.28* 67.25= 419
Crores
• Cost for kingfisher = Cash Paid - Present Value
= 968 – 419 = Rs. 549 Crores
• Value Created/Destroyed (67.25/155) = – 43.38%
19. The deal advantages
• 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, thereby
reducing costs and increasing profitability.
• Access to International routes for Kingfisher
23. Constraints
• The Ministry for Corporate Affairs (MCA) had issued a
show-cause notice to the acquirer (UB Group) for non-
compliance with the provisions of the Companies Act.
• The Act prescribes that if post-acquisition the market
share of the two entities combined exceeds 25 per cent
the corporate concerned needs prior approval of the
Union Government, The official said that the notice was
issued by the southern region field office of the
Ministry.
• Different cultures
