Presented by :,Sabin yadav (053)MBA,BPIBS

Aviation Industriesof

Crowding the Skies

1948-1953

1991-1993

2003

2005-2006

2007

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

KINGFISHER AIRLINES

Simplifly Deccan is India’s first low-cost airline. It was founded and operated by Deccan Aviation Ltd. by Captain Gopinath in 2003 with regular scheduled flights from Bangalore to Mangalore and Hubli. When it started its operations, Deccan was known popularly as the common man's airlines. Continuing this trend even now, Simplifly Deccan sells air tickets for as low as 500/- even now, minus the taxes

Air Deccan

SWOT analysis

Strength:-High load efficiency

-Expanding operation in Sri Lanka

Weakness:-Focus almost exclusively on

South Indian Market-Lack of funds

-Limited advertisement.

Opportunity:-International Market

-Expanding tourism industry

Threats:-Indigo Airline

-Spicejet and other LCC

-Fuel price hike

• Globalizing competition• Financial circumstances prevailing in the

market • Decreasing the strength of the industry• Bringing about integration in the industry• Effecting changes in the technology used• De-regulation

Factors which influence mergers

• Reasons why these take place

• How these benefit the organization

• How various departments of an organization are affected

The factors that must be taken

into considerationwhen an

organization decides to go for

a mergertakeover or an

acquisition

• When two organizations decide to merge a new legal entity is formed . Therefore all assets and liabilities are combined; hence forth the financial status of the merger must be looked at.

• Legal issues of the organization must be looked at seriously.

Factors that must be taken in to

consideration

The primary reason here was to expand business and reduce competition.

Kingfisher airlines took over

Deccan airlines

G.R. Gopinath, Chairman, Deccan Aviation Ltd (right), and Mr Vijay Mallya

• Legally if an airline wants to operate overseas it must have a domestic status of having operated for 5 yrs and therefore in case of kingfisher operating overseas becomes easier.

• In a business of passenger transport there are many government duties and taxes. Therefore the sector is becoming unviable with heavy losses and with global recession even worse.

Contd…..

Final Merger Deal

Merger and Acquisition

Re-branding

• Renamed “Simply Deccan”

• New logo

• New tagline “The choice is simple”

LOSSES YEAR ENDED

Kingfisher Airlines

Rs.577crs 31st March,2007

Deccan Aviation

Rs.418crs 30th June,2007

DEAL STRUCTURE

• 1st Phase:- UB bought 26% stake at Rs.155

p.s. on 9th July,2007- Paid Rs.550crores

• 2nd Phase:- Open offer for additional 20% stake- Additional Rs.418crores

COST BENEFIT ANALYSIS

• Cash Paid = Rs.550Crs + 418Crs = Rs.968Crs

• Present Value of 46%stake = 62316254.28*137.5 = 856.85Crs

• Cost for kingfisher = Cash Paid-Present Value

= 968-856.85

=Rs.111.15Crs.

SYNERGIES

• Operational Synergy in the form of cost cutting(upto Rs.300crs.)

• Increasing market share(32-34%)• Have both direct and indirect

connectivity to the US, Europe and different Asian regions

SYNERGIES

• Received in writing slots to operate flights in San Francisco, JFK (New York) and Heathrow (London)

• These destinations will be connected non-stop from Bangalore, unique routes from India

• Also applied for Mumbai-Hong Kong, Mumbai-London and Delhi-Kathmandu routes.

a)Operational Synergies• Kingfisher and Air Deccan have exactly the

same fleet of aircrafts & the same equipment's (engines, brakes , etc.)

• This provides a huge opportunity on saving in engineering and maintenance cost.

Cont’d

.b) Infrastructure Synergy• Kingfisher and Air Deccan are now using 65 airports, of

which more than 28 are common to both.• The new entity will have over 71 aircrafts (41 Airbus

aircrafts and 30 ATR aircrafts). This will have air travel for all fares and all kinds of people.

• Offer the maximum number of 537 daily flights in 69 cities.

• Synergy benefits arising from a common fleet of aircraft.

Type Of Merger

• Horizontal Merger - Competitive company. • Reverse Merger - Air Deccan merged in Kingfisher.

Overview of aviation Industry in India

23%

8%14%

11%1%9%4%

11%

18% 0%

Market share pre merger

Jet airwaysJet liteAir deccan spice jetParamount airwaysindigo airlines Go air kingfisher air-linesAir indiaothers

22%

8%

29%11%1%

9%

18%1%

Market share post merger

jet airways jet litekingfisher Spice jetParamount airways Indigo airlinego air other

Kingfisher Air deccan

Rs 550 CR

7 3

26% stack

Kingfisher Air Deccan merger

:

Note:- Based on Market price, net asset value and discounted cash flow (By KPMG & Dalal shaw) Enterprise value of Air Deccan:- Rs 2115 cr

SWAP ratio

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Stock Prices of Deccan Aviation

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Kingfisher acquisition of Deccan under lens

• The Ministry for Corporate Affairs (MCA) has issued a show-cause notice to the acquirer (UB Group) for non-compliance with the provisions of the Companies Act.

• The Act prescribes that if post-acquisition the market share of the two entities combined exceeds 25 per cent the corporate concerned needs prior approval of the Union Government,. The official said that the notice was issued by the southern region field office of the Ministry.

The broad terms of the shareholders agreement are proposed to include

• Reconstitution of Board Directors• Management: Chairman Mr. Vijay Mallya

Vice Chairman Mr. Gopinath• Tag along Rights: Subject to applicable law, the

acquires shall have the right to proportionately tag along at the time of the sale of 5% or more of the fully diluted shareholding in the target company in any single transaction by the Promoters.

Kingfisher & 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.

CONCLUSION

• It’s a capital intensive industry,• With few scale efficiencies,• Within a partly regulated infrastructure,• Free market entry• Price competencyThis was the right decision to merge for

achieving all of the above objectives.

Thank you….