India's biggest discount carrier, Deccan, will merge with upmarket Kingfisher Airlines to create the nation's biggest domestic airline, officials said. The firm formed by the merger next year will keep the name Kingfisher, the flagship brand of Vijay Mallya's UB Group, officials from the two carriers said after a four-hour meeting.
“The merger will bring about synergies across the board and lower the cost of operating both the airlines,” Deccan founder G R Gopinath told a Press conference in this southern Indian city where his airline is based.
A merger would marry two airlines that had seemed unlikely bedfellows, with Gopinath earlier this year likening the flamboyant Mallya to someone from Venus and himself to a Martian who would never be able to do a deal.
That was before he sold a 26 per cent stake in June to UB Group, accepting a 5.5-billion-rupee ($139-million) lifeline to keep his fleet in the skies as Deccan Aviation reeled under heavy losses.
“Like politics, business is the art of the possible,” said Gopinath, a first-generation entrepreneur who founded Deccan in 2003.
Both Deccan and Kingfisher, which styles itself as a premium, full-service airline, are struggling to cut costs, break even and turn profitable amid intense competition in India's booming aviation industry.
At least 14 new airlines such as Easy Air, Trans India and Star Air are seeking government approval to start flying in India, where the number of carriers has already jumped to 10 from three in 2003.
India's airline industry, which has expanded aggressively in recent years with about 480 aircraft on delivery through to 2012, lost $500m in the year ending March 2007 because of rising costs and falling airfares.
“The merger is logical under the circumstances,” said Kapil Kaul, India chief executive at the Centre for Asia Pacific Aviation (CAPA).
“It makes sense from the perspective of corporate and legal structures and valuation.” Kingfisher is due to start receiving delivery of wide-bodied, long-haul aircraft in March.
Deccan, India's first discount carrier, will next August complete five years of operations, which is necessary to fly lucrative overseas routes.
Kingfisher has been keen to fly overseas but will complete five years only in 2010, so the merger would help it offer international flights two years early.
Kaul estimated cost savings from the merger at between $80m and $100m a year.
“But the merger has to be done right because the two airlines come from cultural extremes – one a low-cost carrier and the other a full-service premium airline,” he cautioned.
The merger between Deccan and Kingfisher speeds up consolidation in a crowded airline industry following the purchase of Air Sahara by Jet Airways for $340m in April.
“The boards of Kingfisher and Deccan Aviation will meet again next month for formalising the merger,” Mallya said.
Source: Gulf News