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On
May 31, 2007, United Breweries Holdings Limited (UBH), the
parent company of Kingfisher Airlines (Kingfisher), a 'value
carrier'1 based in
Bangalore, acquired a 26 percent stake in Deccan Aviation
Private Limited (DAP), which owned Air Deccan (Deccan), the
pioneer of low-cost airline in India, also based in Bangalore.
UBH paid Rs. 5.5 billion2
to acquire the stake, which made it the largest shareholder in
DAP.3 UBH said that it
would subsequently make an open offer to all the shareholders of
DAP, for an additional 20 percent stake.4
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Vijay Mallya (Mallya), the Chairman of UBH (and
Kingfisher) who became the Vice-Chairman of Deccan after the acquisition
(Ramki Sundaram became the CEO and Capt. G. R. Gopinath - formerly the
Managing Director of Deccan - became the Executive Chairman of Deccan
after the acquisition), said that the Kingfisher-Deccan combine would
cover both low and premium fare segments. It was announced soon after
the acquisition that Deccan would continue with its low-cost business
model.5 The airline would also
focus mostly on Tier II and III city routes, while Kingfisher would
operate on the high density metro routes.6
The Kingfisher-Deccan combine became the largest domestic airline in
India in terms of fleet size, with 71 aircraft.7
The combined entity offered 537 flights to 69 cities daily.8
In addition to this, the combined market share of Kingfisher-Deccan was
estimated to be about 30 percent, positioning them in the second place
after Jet Airways, a full service private airline, whose market share
was estimated to be about 34 percent in mid 2007.9
After the acquisition, both the airlines formed a team to study their
operations and suggest areas in which costs could be pruned. The team
would also suggest how the two airlines could share each other's
infrastructure to achieve maximum synergies.10
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1] Kingfisher was positioned between full
service airlines and low cost airline in the aviation industry, and called
itself a value carrier.
2] "Kingfisher Flies with Air Deccan," The
Indian Express, June 01, 2007.
3] Rajesh Mahapatra "Kingfisher Buys Stake in
Air Deccan," International Business Times, May 31, 2007.
4] "United Breweries Open Offer for Deccan
Aviation," The Hindu Business Line, June 21, 2007.
5] "Kingfisher-Air Deccan Combine to Realize
Rs300 Crore in Operational Savings in the First Year," www.domain-b.com, June 2,
2007.
6] "Air Deccan's Network to be Leveraged," www.indiaaviation.aero, June 18, 2007
7] "Air Deccan Fares to Go up: Mallya," www.expressindia.com, June 01, 2007.
8] C.H.Unnikrishnan, "'Air Deccan Helps Our
Overseas Plans'," www.livemint.com, June 04, 2007.
9] Virendra Parekh, "Indian Aviation Sector
Expects M&A among Low Budget Carriers," Khaleej Times, June 11, 2007.
10] "Vijay Mallya Lands 26% Stake in Deccan Aviation," The
Hindu Business Line, June 01, 2007.
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