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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

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 outside India.

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.

Kingfisher Airlines

Air Deccan

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• 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.

Air Deccan

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

• To make profits & overcome losses (418 Crore loss)

• Competition

• Unviable pricing

• Ever Increasing Cost and cash crunch

• 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

• 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

• 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.

Route 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.

Investment Synergies

Deal in detail... 5

• 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.

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.

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%

The deal…

• 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

Financial analysis6

Financial Analysis

Constraints7

• 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

Market Reactions8

• Market Share

• Kingfisher airlines – Jet airways :- Strategic Alliance

• SIPO’s & Rights Issue

• Financial Report

• Industry Making Losses-Oil Concerns

Current Scenario

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