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Kingfisher buys 26% stake in Air Deccan |
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Kingfisher buys 26% stake in Air Deccan01-Jun-2007 |
Airline Code [DKN]
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The combined market share for Kingfisher and Air Deccan is expected to be about 32-34%. The two airlines will together have 71 aircraft flying to 70 destinations. "Kingfisher will probably become the largest airline in terms of market share (in India)," Air Deccan chairman and managing director GR Gopinath said at a press conference after a meeting of the company's board. According to Karvy Stock Broking Ltd, the combined entity will have a market share of 32-35% and the size of the company will help it to source new planes such as the A380, helping it increase their market share further. Air Deccan, meanwhile, will remain an independent entity and pursue its low-cost business model. Its board unanimously approved the sale of up to 35.2 mlllion new preferred shares. "The purchase price, which is a 16% premium to Air Deccan's closing price yesterday, is reasonable," KR Choksey Securities analyst Gaurang Shah said. The deal is a further example of the consolidation trend in India's expanding aviation market, coming shortly after the acquisition of Air Sahara by Jet Airways. Analysts agreed the latest deal brokered between Kingfisher and Deccan is a part of the continuing consolidation process in the sector as the low-cost carrier segment, which can accommodate only three or four players on an all-India level. United Breweries, which runs Kingfisher, will pay an initial INR1.5 blllion and the balance in the next four weeks. It will also make a subsequent 20% open offer. At board level, Gopinath will be the executive chairman of Air Deccan and Vijay Mallya the vice-chairman. Air Deccan chief financial officer Ramki Sundaram will assume the additional post of interim chief executive with immediate effect. Gopinath said chief operating officer Warwick Brady will leave the company, and a search for a replacement has started. Kingfisher and Air Deccan will jointly appoint six independent directors to the board and select a CEO to enable Air Deccan to become a "professionally managed company". Earlier this month, Air Deccan reacted sharply and ruled out a sale after Kingfisher's chairman Vijay Mallya, who also owns the world's third-largest distiller in UB Group, said his upmarket airline was interested in buying the budget airline. Gopinath said at the time there was "absolutely" no chance of selling a stake to Kingfisher, adding: "They can't co-exist (in any merged entity). One airline will only kill the other." Today, Gopinath explained he initially thought the "marriage will not work", which was why he spoke out in that fashion. He said there were other bidders in the mix but Kingfisher was selected due to its "alignment in vision and operational fit". Gopinath, the 55-year-old former army captain, has built Deccan Aviation into India's number two airline in less than four years. The company reported a net loss of INR2.13 billion for the year to March 31 due to rising fuel price and other operating costs. The debt-equity ratio is now at 1:1 or "slightly less than that", according to Sundaram. Sundaram added the fund infusion will help Air Deccan expand operationally with the company having taken delivery of four Airbus airplanes and 30 ATR turboprop airplane. The company has placed an order for 62 Airbus planes and 30 ATR plans, he said. Analyst Rajendra Prasad of Karvy said the deal will create synergies in parking rights, peak hour landing rights and other infrastructure at congested Indian airports. Jet, which is now focusing on international routes, is trying to chip away at Deccan's leadership of the domestic budget airline market by positioning Sahara -- now known as Jetlite -- as a low-fare carrier. Deccan Aviation shares closed at 146.20 rupees on the Bombay Stock Exchange, up 11.56%, while UB Holdings closed 10% higher at INR683.80. Date posted: 01-Jun-07 |
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