By IANS
Bangalore : In another grand alliance in Indian aviation, liquor baron Vijay Mallya's UB group that runs Kingfisher Airlines has picked up 26-percent equity in rival budget carrier Air Deccan for Rs.5.5 billion ($135 million).
Air Deccan's decision to issue 35.2-million preferential shares to the UB group's holding firm United Breweries (Holdings) Ltd at Rs.155 ($3.78) per share makes Mallya the largest investor in the cash-strapped Air Deccan.
"UB has already paid Rs.1.5 billion and the balance will be received in the next four weeks. As the largest stakeholder, Mallya will be the vice-chairman and I will be the executive chairman of the newly constituted board," Air Deccan managing director Captain G.R. Gopinath told reporters here.
In a bid to avoid further erosion of its net worth, Deccan Aviation had mandated Edelweiss Capital to raise additional capital/funds six months ago to fuel the airline's growth plans.
With equal representation (three directors each) to both firms, UB and Deccan Aviation, the new 12-member board will also have six independent directors, to be appointed soon.
"Of the five bidders that included large industrial houses and private equity investment firms, we have preferred the UB group offer due to the inherent synergies in Air Deccan and Kingfisher," Gopinath pointed out.
Asserting Air Deccan would continue to operate as an independent airline with increased focus on its low-cost business model, Gopinath said the two airlines would share their infrastructure, resources and best practices to cut costs, maximize shareholder value, increase efficiency and improve profitability.
"Air Deccan and Kingfisher will henceforth work closely to exploit the synergies that exist in operations, maintenance, ground handling, connectivity, feeder services and distribution penetration," said the trained pilot, who, along with Kingfisher, awaits a change in the government policy to fly overseas.
As the largest low-cost carrier, Air Deccan operates 355 flights daily across the country, covering 65 cities and towns with a fleet of 19 Airbus (A-320) and 24 ATR turboprops.
"With a combined fleet strength of 71 aircraft, including 28 aircraft of Kingfisher, we both will have the largest fleet to cover 85-90 destinations across the subcontinent," Gopinath added.
For Mallya, whose UB group is the world's second-largest alcohol manufacturer, this is another acquisition to consolidate operations after acquiring Scottish whisky maker Whyte and Mackay for $1.2 billion.
The strategic acquisition of equity by the UB Group comes on the heels of Naresh Goyal-led Jet Airways acquiring rival Air Sahara, and the government giving its nod for the merger of two state-run carriers Air India and Indian Airlines.
As in 2006, Jet and Air Sahara enjoyed a combined market share of 40 percent and that of state-run Indian airlines was next with 21.5 percent. Air Deccan, on the other hand, had a share of 18.3 percent and Kingfisher's was 8.7 percent.
"Now the market dynamics have transformed. I would say the combined share of Air Deccan and Kingfisher should make them clear market leaders in the domestic air space. I would estimate their share at 35 percent," said an aviation analyst.
"Kingfisher will probably become the largest airline in terms of market share," Gopinath said at the press conference after a meeting of the company's board.
A strategic alliance between Kingfisher and Air Deccan had been doing the rounds for some months now, but Gopinath had been strongly denying any report in this regard, even as Mallya kept hinting of the same.