Kingfisher Airlines - Acquisition of Air Deccan: India's First Low-Cost Carrier

In 2005, Vijay Mallya, Chairman of United Breweries Holdings Limited, established Kingfisher Airlines, a premium full-service carrier (FSC) with the aim of being a market leader by 2010. Kingfisher faced tough competition from two incumbents; Air Sahara - an FSC, and Air Deccan - a Low-Cost Carrier (LCC), which offered low fares. By 2006, as some FSCs and most LCCs incurred losses, the Indian aviation industry was headed for consolidation.

Air Deccan, founded by Captain G. R. Gopinath, was India's first LCC offering low fares for early birds. In March 2007, Air Deccan had garnered more than 20 percent market share and was looking for strategic investors. As Air Deccan's fares and competition had hurt all the FSCs including Kingfisher, Mallya was looking for opportunities to acquire the LCC. With negative earnings before interest, depreciation, tax, and aircraft rentals (EBIDTAR), 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 organisation culture, industry analysts and aviation experts were divided on the valuation and offer of Kingfisher, and alignment of the two founders' leadership style and vision.