Mumbai, Dec. 19: Kingfisher Airlines and Air Deccan will merge into a single corporate entity and become a subsidiary of Vijay Mallya-led UB Holdings.

At a joint board meeting of Air Deccan and Kingfisher Airlines in Bangalore, the airlines decided to merge into a single entity, which would be listed as Kingfisher Airlines during the next financial year. Mallya said only parts of Kingfisher would be merged with Air Deccan and the formalities would be completed by March 2008.

Mallya will be appointed the chairman and CEO of the merged entity, while G.R. Gopinath will become vice-chairman. The companies have decided to start overseas flights from August 2008 under the Kingfisher Airlines brand.

The charter operations of Kingfisher and Deccan will be demerged into a separate entity. Deccan’s helicopter operations will also be demerged into a separate entity.

Accenture, which was appointed as the consulting firm by Air Deccan, favours a merger, which will take advantage of the synergies between the airlines.

“We are not going to lose our identity. Even after the merger, the two airlines will continue to cater to two different consumer segments, and Air Deccan will still continue to operate as the best low-cost airline in the country,” Gopinath, who is managing director of Air Deccan, said.

An analyst at CLSA said, “Kingfisher has never believed in a low-cost model. With this merger, Kingfisher will be able to handle Deccan’s financials in a more efficient way, which may lead to both the airlines making profits sooner. The merger will offer synergy of route rationalisation as well. So, Kingfisher will achieve a dual purpose through the merger — flying overseas on Deccan’s licence and getting shares listed easily as Deccan is listed.”

Dalal & Shah will recommend the merger structure, while KPMG has been appointed to work on the valuations and suggest the swap ratio for the merger.

The two companies will meet in early January again.

Kingfisher has placed an order for 10 wide-body A-340 airbuses to start long-haul flights from next year. Deccan completes the mandatory five-year period for operating overseas flights next year.

“International operations take 12-18 months to break even. But, the merger will help the entities deploy their capacities in profitable routes as the fleet size rises. The companies will also save on inventory and ground handling staff,” Surbhi Chawla, aviation analyst at Angel Broking Ltd, said.

“The merged entity will also pose a threat to Jet Airways on international routes,” Chawla added.

Shares of Deccan Aviation fell 6.73 per cent to Rs 295.30 on the BSE today.

Kingfisher and Deccan will together have a market share of about 32 per cent. They will have a fleet size of 80 aircraft (37 of Kingfisher, 43 of Deccan) flying to 70 destinations.