Following the merger of Deccan Aviation with Kingfisher Airlines, Vijay Mallya, the promoter of Kingfisher Airlines, is likely to have over 70 per cent equity stake and GR Gopinath, the original promoters of Deccan Aviation, may have to settle for around five per cent stake in the merged entity.
According to investment banking sources, the valuation of both the companies – Kingfisher Airlines and Deccan Aviation— would be equal and the merged entity would be valued at around Rs 4,000 crore, based on the fleet size and other parameters. Depending upon the paid up capital of Kingfisher Airlines, the swap ratio is likely to be 1:1 if both the companies have equal paid up capital.
As result, Mallya, who is currently holding 46 per cent of Deccan and 100 per cent of Kingfisher Airlines, will have over 70 per cent, and Gopinath, with the current holding of 8.07 per cent in Deccan Aviation, will have around 5 per cent equity stake, source said.
Upon completion of the merger, Deccan Aviation would cease to exist as the company will renamed Kingfisher Airlines. However, brand Deccan would continue in the low-cost carrier category and Kingfisher will operate in the full service e category.
Under the merger plan, the charter business of Deccan Aviation will be spun off into a separate entity, to be jointly owned by Gopinath and the UB Group. Gopinath will be the chairman and CEO, and Vijay Mallya will be the vice chairman of this entity.
Aviation companies are primarily valued on the basis of number of aircraft in its fleet. Jet engine aircrafts are valued at Rs 100 crore per plane, and turbo-props at Rs 50 crore eac. However, depreciation, accumulated losses and life of the aircrafts would be adjusted proportionately from the overall value.
Kingfisher currently has 24 Airbus 320s and 13 ATRs. Deccan Aviation has 20 Airbuses and 23 ATRs. Kingfisher Airlines posted a net loss of Rs 577 crore on revenues of Rs 1,553 crore in the financial year ended March 2007. The carrier had started operations with four aircraft in May ’05 and generated an income of Rs 438 crore during the year ended March ’06. It suffered a loss of Rs 240 crore that year.
Air Deccan has been in the red since its inception, and has accumulated losses of around Rs 700 crore, sources said.