of

Aviation Industrie

Presented by :PRAKASH BARNWAL

ITM Warangal
PGDM-09-11
The Indian aviation industry is one of the fastest-
growing aviation industries in the world with private
airlines accounting for more than 75 per cent of the
sector of the domestic aviation market. With a
compound annual growth rate (CAGR) of 18 per cent
and 454 airports and airstrips in place in the country, of
which 16 are designated as international airports.
• With an increase in traffic movement during December
2009 and increase in revenues by almost US$ 21.4
million, the Airports Authority of India seems set to
accrue better margins in 2009-10, as per the latest
estimates released by the Ministry of Civil Aviation.
This is being primarily attributed to increase in the
share of revenue from Delhi International Airport
Limited (DIAL) and Mumbai International Airport
Limited (MIAL).
• Passengers carried by domestic airlines from January-
February 2010 stood at 80,56,000 as against 67,61,000
in the corresponding period of 2009
 a growth of 19.2 per cent
•
 Genesis of the India
Airline
Industry
• 1932: Mr. J.R.D.TATA flies a De Havilland Puss Moth from
Karachi to Bombay as part of the first Tata Sons Ltd. flight to
deliver mail carried by British Imperial Airways
• 1948: Govt. of India acquires 49% stake in Tata Airlines, designates
it a flag carrier and renames it Air India International (“AII”)
• 1953: Jawaharlal Nehru, in friendly transaction, convinces the Tata
Group to let the Govt. of India acquire a majority stake in AII
and nationalizes air transport
• 1953: Indian Airlines formed by merging eight former independent
domestic airlines
 Contd…
• 1960: India enters the jet age with an Air India
B707; USA and India are connected for the
first time with an Indian airline
• 1989: Indian Airlines becomes one of the first
airlines to induct the A320 into its fleet
• 1990: East West Airlines becomes the 1st
private airline since 1953
•
Crowding the Skies
1948-1953

1991-1993

2003

2005-2006

2007
 KINGFISHER
AIRLINES
 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
 Air Deccan
 Simplifly Deccan is India’s first low-cost
airline. It was founded and operated by Deccan
Aviation Ltd. by Captain Gopinath in 2003
with regular scheduled flights from Bangalore
to Mangalore and Hubli. When it started its
operations, Deccan was known popularly as
the common man's airlines. Continuing this
trend even now, Simplifly Deccan sells air
tickets for as low as 500/- even now, minus the
taxes
 Factors which
influence
mergers
• Globalizing competition
• Financial circumstances prevailing in the market
• Decreasing the strength of the industry
• Bringing about integration in the industry
• Effecting changes in the technology used
• De-regulation
•
 must be taken into
consideration
when an
organization
decides to go for
a merger
• Reasons why these taketakeover
place or an


•
acquisition
How these benefit the organization


• How various departments of an organization are

affected
 Factors
that must be taken in
consideration
• When two organizations decide to merge a new legal
entity is formed . Therefore all assets and liabilities
are combined; hence forth the financial status of
the merger must be looked at.
• Legal issues of the organization must be looked at
seriously.
 Kingfisher airlines to
over
Deccan airlines

G.R. Gopinath, Chairman, Deccan

Aviation Ltd (right), and Mr
Vijay Mallya

Ø The primary reason here was to expand business

and reduce competition.
•
 Contd…..

• Legally if an airline wants to operate overseas it must

have a domestic status of having operated for 5 yrs
and therefore in case of kingfisher operating
overseas becomes easier.
• In a business of passenger transport there are many
government duties and taxes. Therefore the sector
is becoming unviable with heavy losses and with
global recession even worse.
•
Final Merger Deal
 Rationale Behind M&A
• From the Kingfisher’s Point of view
 - To start overseas business(May
2005)
 - For the expansion purpose
 - Survive from the losses (577
Crore loss)
• From the Air Deccan’s Point
 - To make the profit & overcome
losses (418 Crore loss)

 Economies of M&A
 1) SYNERGY
a)Operational Synergies


• Kingfisher and Air Deccan have

exactly the same fleet of
aircrafts & the same equipment's
(engines, brakes , etc.)
• This provides a huge opportunity on
saving in engineering and
maintenance cost.

 Cont’d

. b) Infrastructure Synergy


• Kingfisher and Air Deccan are now

using 65 airports, of which more than
28 are common to both.
• The new entity will have over 71
aircrafts (41 Airbus aircrafts and 30
ATR aircrafts). This will have air travel
for all fares and all kinds of people.
• Offer the maximum number of 537
daily flights in 69 cities.
• Synergy benefits arising from a
common fleet of aircraft.
•
 Cont’d
 2) Fast Growth:
 - It is the inorganic growth.
 - King Fisher wanted to fly
overseas.
 - Wanted to have profits in the
books.
 Type Of Merger
• Horizontal Merger
 - Competitive company.


• Reverse Merger
 - Air Deccan merged in Kingfisher.

 Forms of corporate
Restructuring
• Merger
- Mr Vijay Mallya and Mr. G.R. Gopinath
agreed on merger vested upon the
best interest of both the
companies.
• Strategic Alliance
- They had joined their hand to


achieve the profitability in the two

company and certain other
objectives like to fly overseas.
 Strategy for the Acquiring
Firm
• Strategic Alliance
 They had joined their hand to
achieve
 - Profitability
 - For price competency
 - Expansion



 Tender offer
• Vijay Mallya paid an additional Rs
418 Cr for a further 20% stake
through an open offer.


•
Overview of aviation Industry
in India
 LO S S

Out of cash
Rs 418 Cr

Rs 577 Cr
Limited to domestic airlines
 Kingfisher Air Deccan merger

Rs 550 CR

SWAP ratio

Kingfisher 7 : 3 Air deccan

26 % stack

Note:- Based on Market price, net asset value and discounted cash flow (By KPMG & Dalal s
Enterprise value of Air Deccan:- Rs 2115 cr
Offer price
Details of acquisition
Rs. 155/- per fully paid Rs. 155/- per fully paid up
up equity share equity share

Share holding of Acquirer Nil

and PACs
before the Public Nil
Announcement (P.A.):

Shares acquired by way of 35,222,231 (25.97%) 35,222,231 (25.97%)

Preferential Allotment
purchases (No & %)

Shares acquired in the open 27,126,360 (20.00%) 27,126,360 (20.00%)

offer (No & %)
Size of the open offer Rs. 4,204,585,800 Rs. 4,204,585,800
(No of shares multiplied by
offer price per share)

Shares acquired after P.A. Nil Nil

but before 7 working days
Post offer share holding of 62,348,591 62,348,591 (45.97%)
acquirer
Pre & Post offer share 78,247,067And 51,120,707 78,247,067 and
holding of Public 51,120,707
• Cash Paid = Rs.550Crs + 418Crs =
Rs.968Crs
• Present Value of 46%stake =
62316254.28*137.5 = 856.85Crs
• Cost for kingfisher = Cash Paid-Present
Value
 = 968-856.85
 =Rs.111.15Crs.
  Rs 300-
400 Cr

Operation
synergy
Infrastructure
synergy
Investment
synergy
Changes in Stock Prices
Changes in Stock Prices
 Kingfisher acquisition of
Deccan under lens
• The Ministry for Corporate Affairs (MCA)
has 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
 The broad terms of the
shareholders agreement are
proposed to include
• Reconstitution of Board Directors
• Management: Chairman Mr. Vijay
Mallya Vice Chairman Mr.
Gopinath
• Tag along Rights: Subject to
applicable law, the acquires shall
have the right to proportionately
tag along at the time of the sale of
5% or more of the fully diluted
shareholding in the target company
in any single transaction by the
 Kingfisher & Air Deccan-
Merger Advantage
• 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.
• The combined share of the two carriers will
increase the Market share.
• As per the existing laws Kingfisher
Airlines would not be able to operate on
international routes until 2010. However
Air Deccan would be eligible from the
second half of next year as its five-year
ceiling is coming to an end.
 CONCLUSION
• It’s a capital intensive industry,
• With few scale efficiencies,
• Within a partly regulated
infrastructure,
• Free market entry
• Price competency
This was the right decision to merge

for achieving all of the above

objectives.

Thank you ….