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TOPIC NAME: M&A OFKINGFISHER AIRLINES &AIR DECCAN
PREPARED BY: MAHEK CHHEDA( 07) PUNIT KARIA( 23 ) VAIBHAV SURVE ( 49) STD: T.Y.BCOM (FM)
ACKNOWLEDGEMENT The success of this final report is the outcome of Guidance and valuable suggestions provided by all the concerned without whom the report could not fide on the right back. I would like to express my sincere gratitude to Prof.OBEROI and our College for giving me an opportunity to do this project work. I express my sense of deep gratitude to faculty of our college for her inclusions and timely suggestions in the preparation of this final report. Finally, I will be failing in my duty, if I do not thank my parents, friends and well-wishers for their enthusiastic support and who have directly or indirectly helped in some way or the other in making this final report a success
INDEX 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Introduction A study of merger between Kingfisher Airline & Deccan Airlines Merger &acquisition Review of Kingfisher Airlines Review of Deccan Airlines Key features of Kingfisher and Deccan Airlines Merger Advantage of Kingfisher & Deccan Airlines Synergies of Kingfisher & Deccan Airlines Question with Answer Understanding of the competitive landscape of Indian Airlines Industry Swot Analysis Conclusion Bibliography
INTRODUCTION India is one of the fastest growing aviation markets in the world. The Airport Authority ofIndia (AAI) manages a total of 127 airports in the country, which include 13 internationalairports, 7 custom airports, 80 domestic airports and 28 civil enclaves. There are over450 airports and 1091 registered aircrafts in the country. The genesis of civil aviation inIndia goes back to December 1912 when the first domestic air route between Karachiand Delhi became operational. In the early fifties, all airlines operating in the countrywere merged into either Indian Airlines or Air India. And, by virtue of the AirCorporations Act 1953, this monopoly continued for the next forty years. The Directorate General of Civil Aviation(DGCA) controlled every aspect of aviation,including granting flying licenses, pilots, certifying aircrafts for flight and issuing all rulesand procedures governing Indian airports and airspace. Finally, the Airports Authority ofIndia (AAI) was assigned the responsibility of managing all national and internationalairports and administering every aspect of air transport operation through the Air TrafficControl.
COMPETITIVE LANDSCAPE The air transport services offered are the: Scheduled Air Transport Services (Passenger) Non- Scheduled Air Transport Services (Passenger) Air Transport Services (Cargo) Non-Scheduled Air Transport Services (Charter Operation)
A STUDY OF MERGER BETWEEN KINGFISHER AIRLINES & DECCAN AIRLINES Is kingfisher is still the King of Good times? The Merger/Acquisition Summary Style: Friendly Company Status: Public Intention: Opportunistic Purpose: Defensive Predictability of Value: Calculative Strategic Mode: Development Management Change: Incremental evolution. The Deal: Vijay Mallya paid Rs 550 Cr to acquire 26% equity in Deccan. Subsequently, He paid an additional Rs 418 Cr for a further 20% stake through an open offer. Enterprise value: Rs 2,115 Cr when Mallya acquired 26% Market Share of Air Deccan: 18 % Fleet with Air Deccan: 43 Combined market share: 2 9% Share bought at 2007 was RS.155/share CMP=Rs48/share (2009)
MERGER & ACQUISITIONS The phrase mergers and acquisitions (abbreviatedM&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. Acquisition An acquisition, also known as takeover or a buyout is the buying of one company (the µtarget¶) by another. Merger is when two companies combine together to form a new company altogether. An acquisition may be private or public, depending on whether the acquire or merging company is or isn't listed in public markets. An acquisition may be friendly or hostile. Whether a purchase is perceived as a friendly or hostile depends on how it is communicated to and received by the target company's board of directors, employees and shareholders. It is quite normal though for M&A deal communications to take place in a so called 'confidentiality bubble' whereby information flows are restricted due to confidentiality agreements (Harwood, 2005). In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can, and often do, turn friendly at the end, as the acquirer secures the endorsement of the transaction from the board of the acquire company. This usually requires an improvement in the terms of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger
one. Sometimes, however, a smaller firm will acquire management control of a
larger or longer established company and keep its name for the combined entity. This is known as a Reverse takeover. Another type of acquisition is reverse merger a deal that enables a private company to get publicly listed in a short time period.
A reverse merger occurs when a private company that has strong prospects and is eager to raise financings buys a publicly listed shell company, usually one with no business and limited assets. Achieving acquisition succeeds has proven to be very difficult, while various studies have shown that 50% of acquisition were unsuccessful. The acquisition process is very complex with many dimensions influencing its outcome. There is also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications. y The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company , but since the company is acquired intact as a going concern , this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risk that company faces in its commercial environment. y The buyers buy the assets of the company. The cash the target receives from the sell- off is paid back to its shareholders by the dividend or through liquidation. A buyer often structures the transaction as assets purchased to ³cherry pick´ the assets that it wants and leave out the assets and the liabilities that it does not.
KINGFISHER AIRLINES- A REVIEW 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. In a short span of time, Kingfisher Airlines has carved a niche for itself in the civil aviation industry.
History 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. The airline offers attractive services to its on board passengers. Years following its inception proved to be beneficial for the airline, in terms of its booming business, with a good track record of customer satisfaction. However, it faced a worsening economic scenario in 2008. Kingfisher was engaged earlier in the following businesses: Scheduled Air Transport Services Scheduled Air Transport Services Commercial Airline Business Ground handling services Training academy Merger Motive Vijay Mallya had a vision. His successful Kingfisher Airlines had completed a merger agreement with low cost carrier airlines Deccan Aviation on May, 2007. With this deal he planned to become thedominant low cost carrier in the country.
DECCAN AIRLINES ± A REVIEW 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 both for commercial and non-commercial purposes in India and to provide all aviation related services. It was converted into a public limited company in 2005.
The company¶s vision was ³To empower every Indian to Fly´ and its mission ³To demystify air travel in India by providing reliable low cost and safe travel to the common man by constantly driving down the air fares as an ongoing mission´. As is evident from their mission statement, the strategy was to garner market penetration through cost reduction. Deccan was engaged earlier in the following businesses: Scheduled Air Transport Services Scheduled Air Transport Services Commercial Airline Business Non -Scheduled Air Transport Services Scheduled Air Transport Services Charter Services Operations Market Share Data Market share Data of Oct 2005 AirlinePercentage Indian Airlines 28% Jet Airways 35% Air Sahara 12% Air Deccan 11% King Fisher 6% Spice Jet 5% Others 3% Total 100% Market Data of combined entity was 25% at 2007 Market data of Kingfisher on July 2009 is 22%.
KINGFISHER AIRLINES AND AIR DECCAN MERGERS- KEYS FEATURES 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. Once the investment process is complete, the UB group will become the single Largestshare holder in the Deccan Aviation ltd. UB group will make an open offer to acquire minimum 20% to all shareholders of Deccan aviation at a price of Rs.155. The Kingfisher-Air Deccan group will be the largest domestic airline with a fleet of 71 aircraft including 41 Airbus aircraft and 30 ATR aircraft. This combined airline powerhouse will cover all segments of air travel from low fares to premium fares and offer the maximum number of 537 daily flights covering the single largest network in India connecting 69 cities whilst taking advantage of unparallel synergy benefits arising from a common fleet of aircraft. For the near future, Kingfisher will continue to serve the corporate and business Travel segment while Air Deccan will focus on serving the low fare segment but With improved financial prospects for both carriers. Kingfisher Airlines and Air Deccan will, henceforth, work very closely together to exploit the significant synergies that exist in the areas of operations and maintenance, ground handling, vastly increased connectivity, feeder services, distribution penetration etc.
KINGFISHER AIRLINES AND 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. KINGFISHER & AIR DECCAN ± SYNERGIES Operational synergies y Kingfisher and Air Deccan have exactly the same fleet of aircraft, the same equipment in terms of engine, in terms of brakes and in terms of avionics. This provides a huge opportunity on saving in engineering and maintenance cost. The airlines will achieve perfect synergies in the backend (operations and maintenance, ground handling, vastly increased connectivity, feeder services, distribution penetration) while preserving the front-end and that will enable both Deccan and Kingfisher to be profitable. Apart from ground handling synergies, there is a whole host of items where
Duplication is completely unnecessary and can now be avoided. Infrastructure Synergy y 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. y The new entity will have over 71 aircraft.
Route Synergy y 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. According to Dr.Mallya kingfisher is considering swapping or switching in Coordination with each other to rationalize the fleet structure. Investment synergy 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.
ARE THESE AIRLINES MERGER ARE WORKING? The answer is NO. For two simple reasons: First Reason is Subjectivity: The business investor can¶t resist such a glamorous Business. The second Reason is objectivity: pricing pressure exerted by other low cast Carriers (LCC) Subjectivity: Glamour of the airlines No industry other than film-making industry is as glamorous as the airlines. Airline tycoons from the last century, like J. R. D. Tata and Howard Hughes, and Sir Richard Branson and Dr. VijayaMallya today, have been idolized. Airlines have an aura of glamour around them, and high net worth individuals can always toy with the idea of owning an airline. All the above factors seem to have resulted in a "me too" rush to launch domestic airlines in India. Objectivity: Pricing Pressure Declining yields: LCCs and other entrants together now command a market share of around 46%. Legacy carriers are being forced to match LCC fares, during a time of escalating costs. Increasing growth prospects have attracted & are likely to attract more players, which will lead to more competition. All this has resulted in lower returns for all operators.
UNDERSTANDING THE COMPETITIVE LANDSCAPE OF AIRLINE INDUSTRY The fundamental characteristics of competition in the airline market 1. it¶s a capital intensive industry 2.With few scale efficiencies, 3.Delivering a highly perishable product, 4.Within a partly regulated infrastructure, 5.Driven by powerful unions, 6.Price elastic demand and, 7.Free market entry
y The first obvious advantage that Kingfisher Airlines - Air Deccan have is commonality of fleet. y Scarce manpower can be optimally utilised. Insurance premium and lease rentals can be re-negotiated; infrastructure like engineering, ground handling, and training can be combined. y y C urrent aviation policy wouldn't allow Kingfisher to begin flying overseas for another three years, because of policy regulations. y C hange in work culture and processeshave begun to surface with a brand name change for Deccan being toyed by Kingfisher. y C hanges already have begun to surfacewith a brand name change for Deccan being toyed by Kingfisher.
y Earlier air travel was a privilegeonly a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people.
y Now with the merger of Kingfisher and Air Deccan the future prospects of Indian aviation sector look bright.
BIBLOGRAPHY y y y y y www.google.com www.scribd.com www.indianexpress.com www.wikipedia.com www.kingfisher.com
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