Kingfisher-Deccan mix gets thumbs-up
Consulting firm Accenture has recommended a merger of Kingfisher Airlines with Deccan Aviation in order to fully exploit the synergies between the two airlines, sources close to the development said. The recommendations will be considered by the UB board at a meeting on Wednesday.
The modalities of the deal structure will be decided by a financial consultant to be appointed by the board. However, it is unlikely to be a reverse merger (i.e., Kingfisher merging into Deccan) because of tax implications, the sources added.
Kingfisher Airlines has accumulated losses of some Rs 1,200 crore and Deccan Aviation has losses of at least Rs 800 crore, which, if they continue as separate firms, can be set off against profits. Tax experts say a clever structuring of the merger deal is possible.
The UB group has over the years grown through mergers and acquisitions of various hues. United Spirits has been formed through a merger of five companies, while United Breweries has been through a merger of six separate companies. The Kingfisher-Deccan merger is likely to be completed by the end of this fiscal.
Commenting on the merger, UB group chairman Vijay Mallya told ET that the plan has to be examined by the board. The swap ratio of shares will be decided after the valuation of the companies.
According to the Accenture plan, Deccan Aviation’s charter division, which operates helicopters, should be spun off into a separate company. It is likely that this venture may be headed by the Deccan Aviation founder Captain Gopinath. The company already has permission from the government to import fixed-wing aircraft including Learjets. A blueprint has already been drawn up to expand the business.
The merger of the two companies will solve Kingfisher’s problem of not being eligible for international flights. The airline is targeting an aggressive global foray and has begun pre-delivery payments for the delivery of ten long-haul planes in 2008.
Mr Mallya said Kingfisher has broken even. November was a good month for both airlines — Kingfisher had revenues of Rs 250 crore while Deccan had a topline of Rs 190 crore, he said. Kingfisher Airlines has posted a net loss of Rs 577 crore in the financial year ended March 2007.
The loss was on a revenue of Rs 1,553 crore. The Kingfisher-Air Deccan combine has emerged as India’s largest domestic airline connecting 69 cities with 570 daily flights, with a fleet of 76 aircraft.
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