UB’s foreign ambitions face brand new worries

UB’s foreign ambitions face brand new worries
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First Published: Mon, Apr 07 2008. 01 28 AM IST
Updated: Mon, Apr 07 2008. 01 28 AM IST
New Delhi: The ambitions of Kingfisher Airlines Ltd, the firm controlled by businessman Vijay Mallya and his United Breweries, or UB, business house, to fly overseas have run into fresh regulatory trouble with the ministry of civil aviation ruling out a proposal by the firm that it operate two brands, Kingfisher and Simplifly Deccan.
UB acquired Deccan Aviation Ltd, which runs India’s largest low-cost airline operation by passengers flown, and the merger of Kingfisher Airlines with Deccan is expected to close this month.
The buyout, which will give Mallya and his business group nearly 70% control in the merged entity in return for around Rs1,000 crore, is critical to the Bangalore billionaire’s dreams of expanding his airline’s reach overseas. For, Indian aviation rules do not allow an Indian carrier to fly overseas routes unless it has completed five years of operations on domestic sectors.
The young Kingfisher Airlines will turn three later this summer, while Deccan Aviation, which the UB group plans to use as its vehicle for its foreign flights, will complete five years of operation in August.
According to that plan, most of Kingfisher Airlines’ current business will be spun off and merged into Deccan Aviation and the new entity later named Kingfisher Airlines. That way, the new entity will have satisfied the five-year mandatory experience requirement and be eligible for a licence to fly overseas.
The problem that has now arisen is that Indian aviation rules do not allow a firm that holds a licence to operate an airline from running two or more brands of aviation services. So, for instance, Jet Airways (India) Ltd, India’s largest airline group by passengers flown, runs two brands —Jet and JetLite—by keeping them separately under two operating entities. It still retains the licence of Sahara Airlines Ltd, which it bought in February 2006, in a separate firm called JetLite Ltd.
Though a senior UB group executive said the matter to retain or not to retain the Deccan brand was under evaluation, the government has ma-de it clear that only one brand can stay. “The ownership is one, so brand also (has to be) one,” said Kanu Gohain, director general of aviation regulator Directorate General of Civil Aviation (DGCA).
The UB group executive, who did not wish to be named, said Kingfisher Airlines may have to find ways of taking a different route. For instance, he said, the airline even today has variants of its Kingfisher brand and yet another sub-brand could be looked at. “We still have some aircraft which are called Kingfisher First,” he said. “Maybe we can add a name after Kingfisher—lite or something (instead of Simplifly Deccan).”
Else, said a retired senior DGCA official, the UB group can revisit its decision to merge the two firms—one of which operates the Kingfisher brand and the other that flies Simplifly Deccan. The long-haul aircraft that Kingfisher is buying—10 Airbus SAS-made A330/A340 planes join the firm’s fleet this fiscal—can then be leased to the other subsidiary for a token value, but then the brand flying overseas will be Deccan, he added.
“If you are bent on operating only under Kingfisher, then nothing can be done. I think something somewhere has gone wrong in their calculation or they have a much better plan,” the ex-DGCA official said, requesting anonymity. The UB group executive declined comment on any other plan Kingfisher Airlines might be readying.
If regulations force Kingfisher Airlines to abandon the Simplifly Deccan brand, it will prove expensive for the UB airline. In the last six months, Air Deccan, as it was formerly called, has spent about Rs67 crore in rebranding, including getting its planes painted in the Kingfisher’s colours of red, adding leather seats, and creating a new-look website among other things. That may now have to be redone again.
The group has engaged four consulting, audit and legal firms to help it take the merger forward. Mumbai-based brand firm Market Gate Consulting Pvt. Ltd, headed by former Coca-Cola India vice-president of marketing Shripad Nadkarni, is studying how much mindshare the Deccan brand enjoys among consumers, while consulting firm Accenture Ltd is helping with the operational and financial integration of the two airlines.
Until the first half of the last fiscal, Kingfisher Airlines and Deccan Aviation had registered a loss of Rs776 crore, besides accumulated losses of nearly Rs2,000 crore. On Friday, Deccan Aviation shares closed at Rs115.90 each, less than half its 52-week high of 19 December when the merger decision was made.
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First Published: Mon, Apr 07 2008. 01 28 AM IST
More Topics: UB Group | Vijay Mallya | Kingfisher | Deccan | Foreign |