Kingfisher merging into Deccan - Yes, a possibility

Normally, an underperformer, the Deccan Aviation stock saw hectic buying on stock exchanges on rumours of a reverse merger with Kingfisher Airlines after delisting itself from the stock exchange. Instead, Kingfisher Airlines would list itself on the stock exchange.

If the merger goes through, Deccan would become the largest domestic airline with a 28.4% market share (of which Deccan contributes 15.7% while Kingfisher’s is at 12.7%), followed by Jet Airways’ 21.5%. Vijay Mallya currently holds 74% in Kingfisher Airlines and 46% in Deccan Aviation through UB Holdings.

The reverse merger may be possible as Deccan may soon get to fly on international routes and Kingfisher may use it to fulfill its dream of a full fledged airline. But it would be hesitant to use Deccan as the brand for international flights since it is perceived as a low cost airline deterring many business travellers while Kingfisher has a premium brand image.

Also, Deccan’s financials are nothing to boast off and it needs capital badly to break even. And with oil prices rising and higher airport charges, the balance sheet may bleed further forcing Vijay Mallya to look for options. So the only alternative to infusing cash is a reverse merger with Kingfisher.

But a final decision is likely only after an Accenture study which would study the airlines’ synergy in terms of capacity, route networks, and order book.

Going by the valuation of Jet Airways which has a paid-up capital of Rs.90 crore, the merged of Kingfisher-Deccan will have paid-up value of Rs.200 crore, and a higher share price of Deccan would then be justified.

But among all these talks, one fact that emerges out is the beginning of the end of India’s first low-cost airline.