Presentation1

Submitted by :

Nikhil Patni

Final Merger DealFinal Merger DealFinal Merger DealFinal Merger Deal

Contents•Overview Of Aviation Industry

•About Kingfisher

•About Air Deccan

•Methods Adopting

•Mission & Vision

•SWOT Analysis

•Reasons behind the Merger

•The Merger

Kingfisher & Air Deccan Merger (Pictorial View)

•About The Deal

•Terms Of The Deal

Synergies From Merger

Financial Perspective

Cost – Benefit Analysis

Stock Market Reaction

HR Perspective

Systems Perspective

Kingfisher & Air Deccan Merger Advantage

The Aftermath – Post Merger Issues

Conclusion

Contents• Overview Of Aviation Industry

• About Kingfisher

• About Air Deccan

• Methods Adopting

• Mission & Vision

• SWOT Analysis

• Reasons behind the Merger

• The Merger

• Kingfisher & Air Deccan Merger (Pictorial View)

• About The Deal

• Terms Of The Deal

• Synergies From Merger

• Financial Perspective

• Cost – Benefit Analysis

• Stock Market Reaction

• HR Perspective

• Systems Perspective

• Kingfisher & Air Deccan Merger Advantage

• The Aftermath – Post Merger Issues

• Conclusion

25%

8%

14%11%1%

9%

4%

11%

17% 0%

Market share pre merger

Jet airways

Jet lite

Air deccan

spice jet

Paramount airways

indigo airlines

Go air

Overview of aviation Industry in India

About Kingfisher Airlines

• Launched by Dr. Vijay Mallya 2 years ago• Bangalore based company• Started with a fleet of 4 Airbus A320 aircrafts• Now has a brand new fleet of 8 Airbus A320

aircraft, 3 Airbus A319-100 aircraft and 4 ATR-72 aircrafts

About Air Deccan

• Established in 2003• Is India’s first low-cost airline• Part of Deccan Aviation Private Limited,

India's largest private heli-charter company

METHODS ADAPTINGAs we have taken the example of merger between between Kingfisher and Deccan airlines, which comes under the reverse merger ,as they belong from the same field i.e., Airlines.

1. Financial Sharing:- Before merger the UV group was having 46% of share in Deccan aviation but after the merger they are holding more than 51% of the stake in the company.

Mission of Merger between KF AND DA

As the Indian market is growing day by day so providing them the best service is the main goal of the airlines industries. For that the airline companies are either merging or acquiring the other small or the big airlines company for having higher impact on the market. As the market is going competitive day by day so merger and acquisition is an important thing.

To demystify air travel in India by providing reliable low cost and safe travel to the common man by constantly driving down the air fares.

Vision of Merger between KF and DA.

To become dominant carrier in the country.

To become dominant low cost carrier in the

country. (as the motive of the kingfisher was that only when they merged with the Deccan airlines, as Deccan airlines were the low cost carrier in the country.)

To empower every Indian to Fly.

SWOT Analysis Of The Deal

• “The first obvious advantage that Kingfisher Airlines - Air Deccan have is commonality of fleet”.

• Scarce manpower can be optimally utilized.• Insurance premium and lease rentals can be

re-negotiated, infrastructure like engineering, ground handling, training can be combined.

• Current aviation policy wouldn't allow Kingfisher to begin flying overseas for another three years, because of policy regulations.

• Change in work culture and processes have begun to surface with a brand name change for Deccan being toyed by Kingfisher.

• Changes already have begun to surface with a brand name change for Deccan being toyed by Kingfisher.

• From the Kingfisher’s Point of view - To start overseas business(May 2005) - For the expansion purpose - Survive from the losses (577 Crore loss)• From the Air Deccan’s Point - To make the profit & overcome losses (418 Crore

loss)

Rationale Behind M&A

The Merger“Kingfisher Airlines recently acquiring 46 per cent in Deccan Aviation through a two step process”

• Kingfisher Airlines acquired 26 per cent in Deccan Aviation and then made a public open offer for shareholders of Deccan Aviation• He then upped the ante by buying an additional 20 percent through an open offer for Rs. 5.7 billion

Kingfisher Air Deccan merger

Rs 550 CR

Kingfisher Air Deccan

7 3:

26% stack

Vijay Mallya paid Rs 550 Cr to acquire 26% equity in Deccan. Subsequently,he paid an additional Rs 418 Cr for a further 20% stake through an open offer.

Enterprise value: Rs 2,115 Cr when Mallya acquired 26%

Market Share of Air Deccan:18 %

Fleet with Air Deccan:4

Combined market share: 29%,Share bought at 2007 was RS.155/share

About The Deal

Terms of the Deal• The new shares were issued at a premium of Rs 8.80 or

6 % over Air Deccan’s closing price of Rs 146.20 on NSE. They started operating as a single entity by April, 2008.

• The m The deal was closed through allotment of 3.52 crore fully paid-up equity shares, valued at Rs 155 a share, to UB.

• Merger was based on recommendations of Accenture, the global consulting firm. KPMG did the valuation and the swap ratio was decided accordingly.

• They started operating as a single entity by April, 2008.

SYNERGIES FROM MERGER Operation synergy

• Kingfisher and Air Deccan have exactly the same fleet of aircrafts & the same equipment's (engines, brakes , etc.)

• This provides a huge opportunity on saving in engineering and maintenance cost. (cost cutting upto 300 cr)

Infrastructure synergy

• Kingfisher and Air Deccan are now using 65 airports, of which more than 28 are common to both.

• The new entity will have over 71 aircrafts (41 Airbus aircrafts and 30 ATR aircrafts). This will have air travel for all fares and all kinds of people.

• Offer the maximum number of 537 daily flights in 69 cities. • Synergy benefits arising from a common fleet of aircraft.

Investment synergy

• Fleet expansion can be optimized to increase Available Seat per kilometer (ASKs) as they will have more option to choose aircraft for short and long haul operation accordingly.

• Sharing of physical resources both on ground and in air could potentially spread fixed cost over a larger base and hence lower unit cost

Route synergy

• Increase their passenger load factor

• Both the companies can rework on route and network strategies formation so that both the airlines benefit together as they have same flights between two destination.

Financial Perspective

• Kingfisher Airlines acquired 46 per cent in Deccan Aviation through a two step process: – Kingfisher Airlines acquired 26 per cent for Rs. 550

crore in Deccan Aviation– Then, it made a public open offer for shareholders

of Deccan Aviation

• UB Holdings collectively spent around Rs 1,000 crore for this acquisition

COST BENEFIT ANALYSIS

• Cash Paid = Rs.550Crs + 418Crs = Rs.968Crs

• Present Value of 46%stake = 62316254.28*137.5 = 856.85Crs

• Cost for kingfisher = Cash Paid-Present Value

• = 968-856.85

• =Rs.111.15Crs.

Stock Market Reaction

• Strangely, a day after Vijay Mallya announced his plan to merge Kingfisher into Deccan, the budget carrier's stock fell more than six per cent to Rs 277, even as the BSE Sensex gained 70.61 points.

• Shares of Deccan Aviation fell in Mumbai as investors turned skittish on news of a merger between the low-cost carrier and billionaire Vijay Mallya’s full service Kingfisher Airlines.

HR Perspective• Kingfisher airlines

– a first class management team not just at top most level but also in the second line

– Have managed better than its competition in terms of its HR policies during recession

– benching some 50 pilots and not sack them as an austerity measure inspite of losses

– signed a “non-poaching alliance” with Air Deccan(before the acquisition) under which both the airlines agreed not to hire each other’s employee

– flight attendants selected through a national level model contest which stressed the fact that its employees had to be capable enough to meet the airlines’ high service standards.

Deccan’s Raddix was replaced with Sabre’s Reservation System

Integration of booking engine of Deccan with universal ARMS

April 2009 – Kingfisher Airlines become first airline from India to embrace social media

May 2009 – Launch of King Mobile – a mobile ticketing solution

August 2009 – Long term service agreement with Honeywell to reduce operating costs

All these steps were taken to reduce operational and transactional costs with the entry into the low cost carrier segment

Systems Perspective

Kingfisher & Air Deccan- Merger Advantage

• The fresh equity capital will allow the Deccan to pay the loans & to fund various infrastructure projects.

• Reduction of cost by sharing infrastructure• The merger ensures that Kingfisher does not need to invest

more in infrastructure or in spare planes, thereby reducing costs and increasing profitability.

• The combined share of the two carriers will increase the Market share.

• As per the existing laws Kingfisher Airlines would not be able to operate on international routes until 2010. However Air Deccan would be eligible from the second half of next year as its five-year ceiling is coming to an end.

The Aftermath – Post Merger Issues

• Different Cultures

• Expected Job Cuts

• Different Leadership Styles

contd...• Expected Industry impact

Further consolidation

Rise in fares

Greater shareholder value

Higher attrition rates in employees

• Ever Increasing Cost• Compromise on

quality hits the brand

• Unviable pricing• Competition

• Increasing costs• Difficulty in

maintaining brand image

• Competition from low-cost airlines

• Competition from International Airlines

Motivation for

Merger

Conclusion

The Industry has Witnessed tremendous growth in the Past Decade Leading to intense Competition in the Industry & Setting the Stage for Consolidation .