Mallya takes 26 percent stake in Air Deccan for $135 mn


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 budget carrier Air Deccan for Rs.5.5 billion ($135 million).

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In a notification to stock exchanges, Deccan Aviation Ltd, which operates Air Deccan, said its board had in principle approved the preferential allotment of over 352 million shares to the UB group at Rs.155 ($3.78) per share.

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.

"We had mandated Edelweiss to raise additional capital or funds six months ago to fuel the airline's growth plans," said the Air Deccan notification.

Air Deccan managing director Captain G.R. Gopinath told the media later that Mallya's offer was preferred over other investors due to the inherent synergies existing in Air Deccan and UB-owned Kingfisher Airlines.

"Air Deccan will continue to operate as an independent airline with increased focus on the low-cost business model," Gopinath told a hurriedly convened press conference here.

"With commonality of fleet, we foresee sharing of infrastructure, resources and best practices between the two airlines," added the trained pilot, who, along with Kingfisher, awaits a change in the government policy to fly overseas.

Gopinath will be the executive chairman and Vijay Mallya will become the vice-chairman of the Air Deccan, which will have a combined fleet of 71 aircraft with Kingfisher.

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.

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.