Kingfisher deal to buy 26% of Deccan spells consolidation

In the boldest consolidation move yet in the Indian aviation sector, United Breweries (Holdings) Ltd, a UB Group company that runs full-service carrier Kingfisher Airlines Ltd, bought a 26% stake in Deccan Aviation Ltd, which runs the country’s biggest discount airline, Air Deccan.
In April, India’s largest airline, Jet Airways (India)Ltd, bought smaller rival Sahara Airlines Ltd-run Air Sahara. State-run carriers Air India Ltd and Indian Airlines Ltd, which runs the Indian brand airline, are preparing for a merger starting July.
These moves will leave more than four-fifths of the Indian passenger aviation market with three major players.
The Air Deccan deal, which will cost UB Rs550 crore and give it the rights to bid for another fifth of Deccan Aviation, gives Vijay Mallya, the flamboyant chairman of the liquor-led group, an airline with 43 planes and 22% market share by passengers. Air Deccan, India’s first no-frills carrier that started in August 2003, operates 350 flights to 61 destinations daily.
Kingfisher (11%) and Air Deccan will have a 33% share of all Indian domestic passengers, inching ahead of Jet (22%) and Sahara (9%), based on April figures.
Industry insiders predicted fares would go up as airlines would start taking advantage of their new scale.
The consolidation wave would, however, likely hit the smaller players, predicted another aviation expert. Carriers such as SpiceJet, IndiGo, GoAir and Paramount Airways collectively have only about 12% market share.
A new chief operating officer to replace outgoing Air Deccan COO Warwick Brady has been selected but Gopinath declined to identify the person. Brady appears headed to Jakarta-based Mandala Airlines PT as chief executive.
The Kingfisher deal values shares of Deccan Aviation at Rs155 each, 6% more than its Rs146.20 closing price on Thursday.
Kingfisher and Air Deccan will now have access to ground infrastructure at 65 airports of which more than 28 are common. At congested metropolitan airports New Delhi and Mumbai, which account for more than half of India’s 33 million passenger traffic, they will be able to operate 155 flights.
01/06/07 Tarun Shukla and K. Raghu/Livemint

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Categories: Air Deccan Jun 2007, Kingfisher Jun 2007