Bangalore/New Delhi/Mumbai: Ending months of speculation, Kingfisher Airlines and low-fare carrier Simplifly Deccan will merge into one corporate entity in the next four months, allowing both brands to fly coveted overseas routes come August.

Kingfisher’s owner and UB Group chairman Vijay Mallya, speaking after a board meeting of Simplifly Deccan’s parent Deccan Aviation Ltd, said Deccan Aviation will be renamed as Kingfisher Airlines Ltd and will become a subsidiary of UB Holdings Ltd. Kingfisher will be the listed entity.

Capt. G.R. Gopinath (left) and Vijay Mallya at Deccan Aviation’s AGM on Wednesday

Mallya said UB Holdings Ltd will hold more than 51% stake in the new entity, of which he will be chairman and chief executive officer. Deccan founder G.R. Gopinath will be vice-chairman and also head the charter business of both Deccan and Kingfisher, which will be separated and operated as a single entity.

“Both Kingfisher and Deccan will operate as distinctive brands," said Gopinath. He said they have already filed with civil aviation authorities to fly international routes with Deccan flying to West Asia and South-East Asia, while Kingfisher will fly long-haul sectors, such as to the US.

“It will be complementary," insisted Mallya.

In May, UB Group bought a 26% stake in Deccan Aviation and later raised its ownership to 46%.

Apart from securing a larger combined market share, the stake was critical for the two-year-old Kingfisher Airlines to try and fly international routes as India’s laws require an airline to have been around for at least five years. Deccan completes five years of domestic commercial operations on 26 August.

The merger announcement comes on the heels of a report submitted by consultant Accenture Ltd, hired by UB Group, to advise it on a new structure.

As widely expected, Accenture promptly recommended the two airlines merge. Indeed, shares of Deccan had risen sharply on speculation of a merger.

On Wednesday, prior to the announcement, shares of Deccan Aviation fell 6.44% on the National Stock Exchange of India to touch Rs395.45 a share.

“We are not looking at a plain-vanilla merger. One route is you demerge the schedule carrier business of Kingfisher Airlines and merge it into Deccan," said Ravi Nedungadi, chief financial officer of UB Group. This will help the new entity carry forward the losses. This could be one route, he added.

Nedungadi was referring to the accumulated losses of Kingfisher and Deccan which are about Rs1,200 crore and Rs800 crore, respectively. These can be offset against future profits.