The Hindu Business Line : Vijay Mallya lands 26% stake in Deccan Aviation

Bangalore May 31 Mr Vijay Mallya is turning out to be the latest czar of acquisitions. After gobbling up global spirits giant Whyte & Mackay, Mr Mallya's UB Group, which owns Kingfisher Airlines, has now bought a strategic 26 per cent stake in Deccan Aviation that runs the low-cost airline Air Deccan.

The deal size, worth Rs 550 crore at Rs 155 per share, will strengthen the networth of Deccan Aviation, while the funding will help Deccan meet capital expenditure for further expansion.

Deccan Aviation approved the stake sale at its board meeting on Thursday. The approval is for preferential allotment and issue of 3,52,22231 equity shares at Rs 155 per share to UB Holdings.

The UB Holdings board also approved the deal today. "We bailed each other out," the Air Deccan Managing Director, Capt G.R. Gopinath, later told a news conference on Thursday. He said the stake sale will not alter the business models of both the airlines.

UB Holdings will make an open offer on Monday to purchase an additional 20 per cent from existing shareholders of Deccan Aviation as per SEBI guidelines, the UB Group President, Finance, Mr Ravi Nedungadi, told Business Line. The non-promoter holding in Deccan Aviation is 77.43 per cent and the rest is with the promoters including Capt Gopinath and Mr S.N. Ladhani.

UB Holdings has already paid Rs 150 crore to Deccan Aviation while the rest of the amount will be paid during the next four weeks, the airline's Chief Financial Officer, Mr Ramki Sundaram, who will be the Officiating Chief Executive Officer of the airline, said.

New CEO

With the resignation of the airline's Chief Operating Officer, Mr Warwick Brady, from Air Deccan, a new Chief Executive Officer will be appointed shortly, Capt Gopinath said. "We have already selected our new CEO and will make an announcement shortly," he said.

Kingfisher Airlines and Air Deccan will together have a market share of about 32 per cent, which makes both of them among the top two airlines in the industry. Together, they will have a fleet size of 71 aircraft flying to over 70 destinations.

Capt Gopinath said there were five bidders for a strategic stake in the airline. "Among them, the offer of UB Holdings was the highest and the best," he said. Capt Gopinath explained that he had rejected an earlier offer from Mr Mallya who wanted Kingfisher Airlines to buy a stake in Air Deccan.

"I found no synergies between the two airlines and hence kept rejecting it every time it came up," he said.

However, last Monday, Mr Mallya called up Capt Gopinath again, offering to come in as an investor. As the deal was for operation of the two airlines separately and not under Kingfisher Airlines, Capt Gopinath decided to accept the offer. "We felt that if we had got anybody else, there would be a blood bath in the market," Capt Gopinath said. Edelweiss Capital were the advisers to the transaction.

Entity specifics

The acquisition of 26 per cent stake in Deccan Aviation will make Mr Vijay Mallya's company the single largest shareholder in the entity. There will be equal number of directors from both the companies on the board.

Capt Gopinath will be the new Executive Chairman and Mr Mallya will be the Vice-Chairman. There will also be six independent directors on the board.

Both the airlines have formed a team that will study ways to reduce costs as well as share each other's services and infrastructure, Capt Gopinath said.

Both Kingfisher Airlines and Air Deccan are expected to share spare parts, ground handling facilities as well as airport counters, pilots and engineering services. Kingfisher Airlines had earlier outsourced its ground handling facilities to Indian for a year whose contract came to an end in March.

Funding

The new funding comes at a crucial time for Deccan Aviation. It had taken a Rs 200-crore loan from State Bank of India and had to pay up the amount before May 31. The airline is now negotiating for an extension of the deadline.

The airline has run up huge losses as well. It posted a whopping Rs 213-crore loss during the quarter ending March 31, 2007 on a net income of Rs 437 crore.

The loss for the nine-month period ended March 31, 2007 was Rs 244 crore. Kingfisher Airlines net losses was about Rs 12 crore a month on revenues of about Rs 220 crore a month.

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