Friday 1 February 2008

Kingfisher to Absorb Deccan in 3 Shares for 7 Ratio

Kingfisher Airlines Ltd., the only Indian customer for the Airbus SAS A380, will offer stockholders three shares in Deccan Aviation Ltd. for every seven held, part of a merger plan to expand its fleet, cut costs and fly overseas.

The ratio was approved by the board of the two companies today, Deccan said in an e-mailed statement. The helicopter business run by Deccan, India's biggest low-fare airline, will be separated into a new company, it said.

Kingfisher bought Deccan in May as airlines consolidate in the world's second-most populous nation to cut losses amid a surge in air travel. The combination of Kingfisher and Deccan will challenge Jet Airways India Ltd., the country's largest domestic airline.

UB Holding will own more than 51 percent of Kingfisher after the merger, Kingfisher's billionaire founder Vijay Mallya said last month. Mallya will be the chairman and chief executive officer of the merged airline, while G.R. Gopinath, Deccan Aviation's founder and chairman, will be the vice chairman.

Kingfisher will start overseas flights in August, Gopinath said last month. The first services will be to the Middle East, followed by South Asian nations, he said.

Overseas Flights

The merger benefits Kingfisher's plan to fly overseas as Deccan has already sought permission from the government to fly abroad, including to the U.S., Middle East and Southeast Asia. Kingfisher, which started in May 2005, would otherwise be eligible to start overseas flights only in 2010, according to current government guidelines. Deccan started in 2003 and is therefore entitled to fly abroad this year.

Deccan Aviation fell 1.8 percent to 173.9 rupees at the close of trading today on the Bombay Stock Exchange. The shares have risen 20 percent in the past year compared with a 27 percent increase in the benchmark Sensitive Index.

Kingfisher, the merged entity, will retain both the Kingfisher and Deccan brands. Deccan will continue as a low-fare airline, Mallya said last month.

Accenture Ltd., which advised the Indian government on combining its two airlines, advised Mallya on cutting operational and maintenance costs in an industry that lost $500 million last year, according to the Centre for Asia Pacific Aviation.

Kingfisher and Deccan Aviation both use planes made by Airbus and propeller planes of Avions de Transport Regional.

Kingfisher ordered five of the double-decker Airbus A380s and took options for another five in June 2005. The airline plans to purchase 15 A350-800 XWBs, 10 A330-200s, five long- range A340-500s and 20 A320 series aircraft.

The merged airline's fleet, which will number more than 70, will bring it close to the tally of Jet Airways.