Kingfisher Airlines

Acquires

a stake in Air Deccan: The Indian Aviation

Sector Moves towards Consolidation On May 31, 2007, United Breweries Holdings Limited (UBH), the parent ompany o! "ing!isher #irlines ("ing!isher), a $%al&e arrier$ 1 'ased in Bangalore, a (&ired a 2) per ent sta*e in +e (+e an #%iation ,ri%ate Limited (+#,), whi h owned #ir +e an

an), the pioneer o! low- ost airline in .ndia, also 'ased in Bangalore/ UBH paid

0s/ 1/1 'illion2 to a (&ire the sta*e, whi h made it the largest shareholder in +#,/ UBH said that it wo&ld s&'se(&ently ma*e an open o!!er to all the shareholders o! +#,, !or an additional 20 per ent sta*e/! 2i3ay Mallya (Mallya), the 4hairman o! UBH (and "ing!isher) who 'e ame the 2i e4hairman o! +e an a!ter the a (&isition (0am*i 5&ndaram 'e ame the 46O and an - 'e ame the

4apt/ 7/ 0/ 7opinath - !ormerly the Managing +ire tor o! +e 68e &ti%e 4hairman o! +e +e

an a!ter the a (&isition), said that the "ing!isher-

an om'ine wo&ld o%er 'oth low and premi&m !are segments/ .t was anno&n ed an wo&ld ontin&e with its low- ost '&siness

soon a!ter the a (&isition that +e

model/" 9he airline wo&ld also !o &s mostly on 9ier .. and ... ity ro&tes, while "ing!isher wo&ld operate on the high density metro ro&tes/ #

9he "ing!isher-+e

an om'ine 'e ame the largest domesti airline in .ndia in

terms o! !leet si:e, with 71 air ra!t/$ 9he om'ined entity o!!ered 137 !lights to ); ities daily/% .n addition to this, the om'ined mar*et share o! "ing!isher+e an was estimated to 'e a'o&t 30 per ent, positioning them in the se ond pla e

a!ter <et #irways, a !&ll ser%i e pri%ate airline, whose mar*et share was estimated to 'e a'o&t 3= per ent in mid 2007/&

#!ter the a (&isition, 'oth the airlines !ormed a team to st&dy their operations and s&ggest areas in whi h osts o&ld 'e pr&ned/ 9he team wo&ld also s&ggest how the two airlines o&ld share ea h other$s in!rastr& t&re to a hie%e ma8im&m synergies/1' Mallya said that "ing!isher and +e an e8pe ted to sa%e 0s/ 3 'illion, thro&gh

om'ined operations, in the !irst year/ 11 He said that +e

an$s networ* was a *ey

asset that o&ld 'e le%eraged/ 5ynergies were e8pe ted to arise in the areas o! gro&nd sta!!, air ra!t, operation and maintenan e, gro&nd handling, 'aggage handling, in reased onne ti%ity, !eeder ser%i es, and distri'&tion penetration/ Mallya indi ated that the airlines o&ld a hie%e sa%ings 'y sharing reser%ation ser%i es, engineering ser%i es, ser%i e stations, spares, pilots, other rew, and par*ing 'ays at airports/ #lso, 'oth "ing!isher and +e an operated identi al air ra!t (the #ir'&s #-320

!amily and #90-72-100)/ 9his was e8pe ted to sa%e engineering and maintenan e osts !or 'oth the airlines/ 6arlier, +e an had posted a loss o! 0s/ 2/13 'illion

d&ring the (&arter ending Mar h 31, 2007/12 "ing!isher was also reportedly losing an a%erage o! 0s/ 120 million, on a%erage re%en&es o! a'o&t 0s/ 22 'illion, e%ery month/1 .t was e8pe ted that the synergies a hie%ed thro&gh om'ined operations wo&ld impro%e the !inan ial health o! 'oth the airlines/ 9he allian e was also e8pe ted to allow "ing!isher to a hie%e its goal o! operating !lights on international ro&tes/ #s o! mid 2007, the .ndian go%ernment iss&ed international operations permits only to those airlines that had ompleted !i%e years o! domesti operations/ #s "ing!isher was only two years old (it started operations in May 2001), it wo&ld ha%e had to wait !or three more years to !ly on international ro&tes/ B&t a (&iring a sta*e in +e an, whi h wo&ld rea h the an started its

stip&lated ondition o! !i%e year o! operations in 200> (+e

operations in #&g&st 2003), o&ld allow "ing!isher to !ly to international destinations starting in the se ond part o! 200>/ Mallya said that he wo&ld ha%e an internal arrangement to lease o&t "ing!isher air ra!t to +e 'ene!it o! o%erseas ro&tes$/1! an $to ma8imi:e the

.n a report released in Mar h 2007, the 4enter !or #sia ,a i!i #%iation (4#,#), an airline ind&stry ons&ltan y 'ased in 5ydney, had predi ted that in reasing losses and e8 ess apa ity wo&ld res&lt in onsolidation in the .ndian a%iation se tor/ 1" 9he "ing!isher-+e an deal was the third allian e in the .ndian a%iation se tor, sin e

the 'eginning o! 2007/ 9he year saw the merger o! <et #irways and 5ahara #irlines (in #pril 2007), and #ir .ndia and .ndian #irlines (in early May 2007)/ 9al*ing a'o&t the trend o! onsolidation in .ndian a%iation se tor, Mallya said that intense ompetition and the in reasing n&m'er o! '&dget arriers had led to &nder-pri ing o! ti *ets, whi h res&lted in losses to the '&dget arriers as well as to the entire a%iation se tor/ He !elt that onsolidation among the airlines wo&ld lead to less ompetition and sta'le !ares/ "apil "a&l ("a&l), the 46O o! 4#,# (.ndian s&' ontinent and Middle 6ast), said that in spite o! the en o&raging tra!!i growth pro3e tions, it was ?e8tremely di!!i &lt !or a mar*et to a'sor' so many new entrants in a short spa e o! time/? 1# "a&l said that airport in!rastr& t&re and manpower shortages wo&ld res&lt in in reasing osts, and red& ed e!!i ien y and !le8i'ility !or the .ndian a%iation se tor/ 1$ 9here were 13 s hed&led arriers in the !ragmented .ndian domesti a%iation se tor, as o! early 2007/1% "a&l estimated that this n&m'er wo&ld !all to >-10 'y 2010/ #nalysts !elt that the new entrants into the a%iation se tor had o%erestimated the n&m'er o! prospe ti%e air tra%elers/ 9hey !elt that the ost str& t&re o! airline operations was a *ey a&se o! the pro'lems a!!e ting domesti airlines/ .n the ost str& t&re o! airline operations, !i8ed osts li*e air ra!t lease rentals, depre iation, and sta!! osts o&ld 'e as high as 10 per ent o! sales/ #nd e%en a slight de line in tra!!i %ol&me, or a nominal addition to the ind&stry apa ity d&e to the entry o! new players, o&ld ad%ersely a!!e t the e8isting operators/ #nalysts also !elt that the operating ost !or airlines was high in .ndia 'e a&se o! high !&el pri es, inade(&ate airport in!rastr& t&re, and la * o! trained manpower/ 1&

9he sta'ili:ing o! air!ares d&e to mergers and allian es was e8pe ted to pro%ide respite to small airlines whi h had 'een !or ed to red& e their !ares drasti ally to gain mar*et share, '&t were !a ing losses as a res&lt/ B&ndeep 5ingh 0angar, the 4hairman o! .nd&s%iew #d%isors o! Britain, a '&siness ad%isory ons&ltan y, said that the remaining low ost airlines in .ndia o&ld also 'e ome ta*eo%er targets in !&t&re/2' "a&l also predi ted onsolidation in the .ndian a%iation se tor in the !orm o! strategi allian es, mar*et e8its, and '&yo&ts o! smaller airlines/? 21

Additional (eadings and (eferences 1/ ?@ow, 9hree-Aear-Old #irlines 4an Bly #'road,?9he 6 onomi 9imes, httpCDDi'e!/org, +e em'er 1=, 200)/ 2/ ?#%iation 4onsolidation Looming in .ndiaC O&tloo* 2007 0eport 0eleased,?www/ entre!ora%iation/ om, Mar h 7, 2007/ 3/ ?"ing!isher #irlines B&ys 2) , t 5ta*e in #ir +e 0&pees,?www/a' money/ o/&*, May 31, 2007/ =/ ?"ing!isher Blies with #ir +e 1/ ?#ir +e an,?9he .ndian 68press, <&ne 01, 2007/ an !or 1/1 Bln

an Bares to 7o &pC Mallya,?www/e8pressindia/ om, <&ne 01, 2007/ an #%iation,?9he Hind& B&siness Line, <&ne

)/ ?2i3ay Mallya Lands 2)E 5ta*e in +e 01, 2007/ 7/ ?"ing!isher-#ir +e 01, 2007/ >/ 4/H/Unni*rishnan, ?$#ir +e <&ne 0=, 2007

anC +i!!erent, Aet 5imilar,?9he Hind& B&siness Line, <&ne

an Helps O&r O%erseas ,lans$,?www/li%emint/ om,

;/ @andini La*shman ?Merger Mania 0eshapes .ndian #irlines,?B&sinessFee*, <&ne 11, 2007/ 10/ 2irendra ,are*h, ?.ndian #%iation 5e tor 68pe ts MG# among Low B&dget 4arriers,?"halee3 9imes, <&ne 11, 2007/ 11/ ?.ndia$s #irline .nd&stry Ba es More 4onsolidation,?www/li%emint/ om, <&ne 1=, 2007 12/ 0a'in 7hosh ?$ "ing!isher-#ir +e 21, 2007. an Merger Best Bit$,?www/dnaindia/ om, <&ly