The boards of Deccan Aviation and Kingfisher Airlines on Wednesday unanimously decided to merge Kingfisher Airlines with Deccan Aviation.
The merger will create the largest player in the domestic aviation market and pave the way for Vijay Mallya to fly his Kingfisher Airlines to overseas destinations.
Deccan Aviation will subsequently be renamed Kingfisher Airlines. Vijay Mallya will be the chairman and CEO of this company and GR Gopinath, who pioneered low cost aviation in India with Deccan Aviation, will be its vice-chairman.
Mallya’s UB Holdings, which owns the closely-held Kingfisher Airlines and has 46 per cent in Deccan Aviation, will hold a “significant majority” in the new firm.
Today’s decision follows recommendations to this effect made by professional services firm Accenture which was appointed to present a report on synergies between the two airlines.
Both the airlines are in the red. While Deccan Aviation reported a loss of Rs 419 crore for the year ended June 30, 2007, Kingfisher Airlines had a loss of Rs 577 crore on its books for the year ended March 31, 2007.
The new firm will operate two separate brands – Deccan and Kingfisher – and will retain their identities of being a low-cost carrier and a full-service airline, respectively.
Addressing the media after the board meetings, Mallya said that the new firm will kick off by early next fiscal. The swap ratio will be decided within four to five weeks’ time from today and will be decided by accounting firms KPMG and Dalal & Shah.
This process of merger has been a result of Kingfisher Airlines recently acquiring 46 per cent in Deccan Aviation through a two step process.
First, Kingfisher Airlines acquired 26 per cent in Deccan Aviation and then made a public open offer for shareholders of Deccan Aviation. UB Holdings collectively spent around Rs 1,000 crore for this acquisition.
Mallya, who has been lobbying hard with the government to let him fly abroad before his airline completes five years of domestic operations, would get what he wanted through this strategic move.
“There is absolutely no doubt on why Kingfisher Airlines cannot fly overseas. From August 2008, the merged firm will have a right to fly overseas. With our two brands, we will surely fly overseas post that date,” he held forth.
It is understood that Deccan will fly to SAARC and West Asian countries, while, Kingfisher's target will be to touch down at San Francisco and New York from Bangalore.
Gopinath further added that Accenture in addition to this merger has also advised elaborately on the route rationalization, cost utilization and staffing issues, which will be detailed at a later date.