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KingFisher Airlines

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Air Deccan

What kicked the deal?

The rationale

Deal in detail

The financial analysis

Constraints and Issues

8

The Market reactions

Agenda


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KingFisher Airlines


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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 outsideIndia.

Kingfisher Airlines


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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.

Kingfisher Airlines


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Air Deccan


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A wholly owned subsidiary of Deccan Aviation, Air

Deccan, is Indias first low cost carrier.

Deccan was known popularly as the common man'sairlines. 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, wasinitially 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.

Air Deccan


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The RationaleThis is an example text. Go ahead and replace it

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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


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To make profits & overcome losses (418 Crore loss)

Competition

Unviable pricing

Ever Increasing Cost and cash crunch


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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%)

Operational Synergies


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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.

Infrastructure Synergies


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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 nowaccount 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.

Route Synergies


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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.

Investment Synergies


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Deal in detail...5


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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 shareapproximately 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.

The deal


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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 inthe Deccan Aviation ltd.

The deal


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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%

The deal


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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

The deal advantages


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Financial analysis6


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Financial Analysis


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Constraints7


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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

Constraints


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Market Reactions8


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Market Share

Kingfisher airlines Jet airways :- Strategic Alliance

SIPOs & Rights Issue

Financial Report

Industry Making Losses-Oil Concerns

Current Scenario


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