Kingfisher Airlines – Acquisition of Air Deccan: India's First Low-Cost Carrier By Mahmud Hossain & D. G. Allampalli

Publisher Ref No:	ABCC-2009-004	Pub/Rev Date:	2010
Industry:	Airlines & Aviation	Case Length:	19 pages
Teaching Note Ref:	-	Teaching Note:	-
Organisation:	Kingfisher Airlines; Air Deccan	Period Covered:	2005 - 2007
Country:	India	Level:	Undergraduate/ Postgraduate

Publisher:

The Asian Business Case Centre, Nanyang Technological University

Abstract

In 2005, Vijay Mallya, Chairman of United Breweries Holdings Limited, founded Kingfisher Airlines (Kingfisher), a premium Full-Service Carrier (FSC) aiming to be a market leader by 2010. Two incumbents, Air Sahara, a FSC and Air Deccan, a Low-Cost Carrier (LCC) offered low fares and were giving Kingfisher tough competition. By 2006, as some FSCs and most LCCs incurred losses, the Indian aviation industry was headed for consolidation.

In March 2007, Air Deccan, India's first LCC promoted by Captain G.R. Gopinath, which offered low fares for early birds, had garnered more than 20 percent market share and was looking for strategic investors. As Air Deccan's fares and competition had hurt all FSCs including Kingfisher, Mallya was looking for opportunities to acquire it. With negative earnings before interest, taxes, depreciation, amortisation and aircraft rentals, and no financial or stock-market comparables to value the loss-making LCC, Mallya came up with an offer of Rs. 5,500 million for a 26 percent stake in May 2007. As Kingfisher and Air Deccan inherited different business models, brands, management and leadership styles, and organisational culture, industry analysts and aviation experts were divided on the valuation and offer of Kingfisher, and the alignment of the two founders' leadership style and vision.

Issues: Valuation of low-cost carrier; merger and integration; growth of airline businesses

About the Authors