The savings would come from a common sharing of engineering services, spares, employees, pilots, other crew, and ground-handling facilities.

The combined revenue of Kingfisher and Air Deccan airlines in FY07-08 is estimated at Rs 6,000 crore. Mallya said, "We will soon see a net profit in Deccan Aviation. Together, the two airlines account for 50 per cent of the deployed capacity of south India.Mallya said Kingfisher was expected to make an operational profit in FY08 and net profit in FY09.

For the time being, the two airlines will continue to be run independently, but would work out an optimal route strategy, wherever possible.

Deccan Aviation will continue to be run as a low-cost carrier. Mallya, however, said there were no immediate plans to raise fares though he added that consumers could not hope to get fares at levels where the airlines were making a loss. However, the combined entity can offer competitive airfares owing to cost savings of Rs 300 crore.

The deal will be funded through borrowings made in UB Holdings, which has assets worth Rs 4,000 crore in real estate, breweries and airlines. Mallya said several investors have shown interest in the aviation business of the UB Group.

On whether he will speed up the IPO process of Kingfisher, Mallya said, "The valuation of Kingfisher would be enhanced following this acquisition and we don't want to sell Kingfisher shares cheap, we will wait for the right time."

The Kingfisher-Air Deccan group will be the largest domestic airline with a fleet of 71 aircraft, including 41 Airbuses and 30 ATRs.

The combine would cover all segments of air travel from low fares to premium fares and offer the maximum number of 537 daily flights, connecting 69 cities, said Air Deccan, executive chairman, G R Gopinath.

"Kingfisher and Air Deccan will work closely together in areas of operation and maintenance ground handling, baggage handling, pilots, increased connectivity feeder services and distribution penetration," said Gopinath.