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Kingfisher-Deccan plan $250 mn expansion

Last updated on: December 21, 2007 08:43 IST

Key executives in Kingfisher Airlines and Air Deccan, which announced merger plans on Wednesday, said the merged company has plans to almost double its fleet from 80 to 158 aircraft over the next five to seven years and raise $250 million through equity infusion to finance its immediate expansion needs.

The merger will also save between Rs 300 crore (Rs 3 billion) and Rs 400 crore (Rs 4 billion) a year as a result of synergies.

"We are looking at gaining 0.5 per cent market share from our competitors every month, which will give us an extra 6 per cent annually. Of course, these numbers could change depending on the growth patterns of competing carriers," said G R Gopinath, who will be vice- chairman of the merged company.

The combined entity currently has a 28.8 per cent market share, the second largest in the domestic industry today after the Jet and JetLite combine.

Gopinath added that he expected the airline to turn the corner in the next six months. The combined loss of the two companies was around Rs 1,000 crore.

A K Ravi Nedungadi, president and CFO of UB group, which promoted Kingfisher Airlines, said the three-year-old airline would break even in the next financial year.

He added that the merged company could expect to add Rs 300 crore to Rs 400 crore to the bottom line in the first six months of international operations.

International operations are slated to begin only in August 2008, when Air Deccan completes five years of operations, the government-stipulated period for airlines to fly overseas.

The Vijay Mallya-controlled UB group already has a 46 per cent stake in Deccan Aviation, which runs Simplifly Deccan (earlier Air Deccan), and expects to have a majority equity stake in the merged entity.

Explaining its fund-raising programme Nedungadi said, "We are talking to bankers. There have been some expressions of interest from private equity partners and merchant bankers."

However, the news did not bring cheer in the stock market, where the Deccan Aviation share fell by 6.2 per cent, closing at Rs 277 over the previous day after soaring to a high of Rs 315 a share on the Bombay Stock Exchange.

"In the last one month, the Deccan Aviation stock has gone up only on the rumour of the merger," said Surbhi Chawla, analyst with Angel Broking, which tracks Deccan Aviation.

"The key reason for the fall is that Deccan as a separate company would have achieved break-even earlier than Kingfisher," Chawla added.

BS Reporter in New Delhi
Source: source