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‘Air Deccan helps our overseas plans’

‘Air Deccan helps our overseas plans’
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First Published: Mon, Jun 04 2007. 12 04 AM IST
Updated: Mon, Jun 04 2007. 12 04 AM IST
Mumbai: Flamboyant billionaire Vijay Mallya, chairman of the UB Group, one of the country’s most diversified business houses with annual revenues of $2.17 billion, is not one who believes in resting on his laurels. After two strategic acquisitions in the past month in the whisky and airlines businesses, Mallya is busy plotting leverages, such as using Air Deccan to get Kingfisher into overseas markets and bringing in the White & Mackay whisky brands to India before Diwali.
Soon after announcing his latest deal, a 26% controlling stake in Deccan Aviation Ltd, which runs India’s first and largest low-cost airline, Air Deccan, Mallya sat down with Mint. Edited excerpts:
Will the expected cost savings by a combined operation of Kingfisher and Deccan lead to a fare war in the Indian skies?
The combined operation of these two airlines, that are complementary to each other, will make the business more efficient. It will not necessarily lead to a fare cut but will make sure that we need not sell the ticket at a loss. I am fairly certain that this will certainly trigger more consolidation in the Indian aviation space.
Another big advantage we expect through our strategic investment in Deccan is that our airlines will be able to operate in overseas routes by next year onwards, as Deccan will be completing five years of operation by 2008 to qualify for overseas schedules as per the current Indian aviation law.
That’s Air Deccan but Kingfisher cannot fly overseas.
For all practical purposes, we will be one entity. We will have an internal arrangement to lease out high-capacity Kingfisher aircraft to Air Deccan to maximize the benefit of overseas routes.
What else?
Since Kingfisher-Air Deccan group becomes the largest domestic airline with a fleet of 71 aircraft, including 41 Airbuses and 30 ATRs, the combine would cover all segments of air travel from low fares to premium fares and offer the maximum number of 537 daily flights, connecting 69 cities. Kingfisher and Air Deccan will also work closely together in areas of operation and maintenance, ground handling, baggage handling, pilots, increased connectivity, feeder services and distribution penetration, besides sharing reservation services, service stations and even parking bays at airports.
The consumers too stand to benefit from the combined operation. If there are cancellations of Air Deccan flights, Kingfisher will take the passenger with no additional fare despite Kingfisher being a premium service airline.
How will you fund the Air Deccan deal?
The deal will be funded through borrowings made by UB Holdings, which has assets worth Rs4,000 crore in real estate, breweries and airlines. In addition, several investors have shown interest in the aviation business of our group. So there will be a preferential allotment of equities in the airline entity.
In the first week of May, you made headlines by taking over the Scottish spirit maker Whyte & Mackay for Rs4,800 crore. Now, one more acquisition—a 26% stake in Air Deccan for Rs550 crore with an offer to buy another 20%. What do these two high-cost deals mean to your group?
Whyte & Mackay, one of the world’s large Scotch distilleries with a brand portfolio of international repute along with a high-value inventory of vintage Scotch, will give the UB Group access to a ready global whisky market besides making its presence in the premium segment in India. Frankly, the Scotch was a missing link in our spirit business. A controlling stake in Air Deccan will make our airline business the largest in India by market share as well as its strong presence in both premium and low-cost service segments.
Tell us more about the synergies that you want to exploit both in the airline as well as liquor space.
By working together, Kingfisher Airlines and Deccan Aviation will save Rs300 crore in the first full year of operation. The savings would come from a common sharing of engineering services, spares, employees, pilots, other crew and ground-handling facilities. The combined revenue of Kingfisher and Air Deccan airlines in 2007-08 is estimated at Rs6,000 crore. Initially, the two airlines will continue to be run independently as a premium service provider and a low-cost airline respectively, but would work out an optimal route strategy, wherever possible. In terms of volume of passengers, the combine will have the largest market share.
In the spirits business, we are No. 1 in the country with our large Indian-made foreign liquor portfolio and also with the largest selling beer brand. However, the Scotland-distilled whisky and foreign premium spirit was a missing link in the business to become competitive in the fast emerging premium spirit market in India and also to make our footprint in the global markets.
How are you going to leverage the Whyte & Mackay strength in the domestic market?
Since Whyte & Mackay was a takeover deal, the business consolidation is currently on and is expected to complete by the end of the year. At present, Whyte & Mackay is a 100% subsidiary of United Spirits Ltd (the spirit business arm of the UB Group) through an intermediary holding company established for the acquisition.
Whyte & Mackay owns the world’s most popular Scotch brands, including (single malt whiskies) Dalmore, Isle of Jura, Fettercairn, (Scotch whisky liqueur) Glayva, Vladivar vodka and Whyte & Mackay blended Scotch.
The Scottish distiller has 140 brands—some of them are dormant but that can be revived. We will bring the Whyte & Mackay brands into India and China and there will be a revamp of the product portfolio, depending on the requirements of these markets. United will launch all the six popular brands of Whyte & Mackay in India in November, just ahead of Diwali. These whiskies will be launched at competitive prices in the local market. Since the government is likely to slash the duty on imported liquor, we hope the cost of imported bulk whisky will be quite supportive to our local pricing strategy. This will give us an edge in the local market over the competitors in the premium segment.
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First Published: Mon, Jun 04 2007. 12 04 AM IST
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