Group 6 Think TANKS

Tushar Ranjan
Anupam Anand
Nikhil Kumar
Kamlesh Kalwar
Sandip Sharma
Agenda
 Indian Airlines Industry

 SWOT analysis

 Objective

 BATNA

 Tradables

 Negotiation process

 Agreement details
Indian Airlines Industry
 Intense competition – pressure to reduce fare.

 Fixed costs like aircraft lease rentals, depreciation and

staff costs account for 50% of sales.

 Major consolidation taking place: Jet-Sahara deal, Air

India-Indian merger.

 Air passenger traffic is increasing by more than 30%.

Market Share of Airlines
SWOT analysis
(Kingfisher)
Strengths
Caters to premium segment
Fleet of Airbus and ATRs also
owned by Air Deccan
Cash rich airlines
Opportunities
Consolidation can decrease
fixed costs
Improve competitiveness
Opportunity to enter
international flight business
early
Share crew, MRO
infrastructure with Air
Weakness
Cannot fly on international
routes for another 3 years
Had outsourced ground
handling to Indian on a 1 year
contract
Incurring losses of Rs 12
crores a month
Threats
Loss of brand value
Jet – Sahara merger can offer
competition on domestic and
international sectors
Air India – Indian merger has
increased competition
SWOT analysis (Air
Deccan)
Strengths
Maintenance contract with
Lufthansa Technik
Can fly on international
routes within 1 year
Most extensive domestic
network touching maximum
airports
Opportunities
Can fly on international
routes
Consolidation can lead to
sharing of crew, spares and
ground facilities
Consolidation can avoid
‘bloodshed’
Weakness
Needs funding for capex
Needs to replay Rs 200 crore
loan to SBI
Running in losses for the past
several quarters
Talks with Texas Pacific group
and Reliance ADAG group
have failed
Threats
Competition from ‘Jetlite’ of
the Jet Airways
Loss of brand identity in case
of a merger
Objective
Long term:

 To achieve consolidation, improve competitiveness in the

aviation industry

Short term:

 Come out of losses and achieve operational profit of Rs 300

crores in 1st year itself.

 Reduce joint cost of maintaining crew, ground facilities, MRO

and spares inventory
BATNA
If the negotiation would have failed for Kingfisher, it
could have looked into acquiring other domestic
operators like Spice or GoAir.
Tradables
 Ownership and price per share

 Mode and structure of payment

 Structure of Board of Directors

 Branding strategy

 Sharing of ground facilities, crew, MRO

 Selection of CEO for Deccan Aviation

 Sectors – Domestic and International

Sense of Deja-Vu
 Aug 2004: Six months after Gopinath started his airline
had Gopinath listened to Mallya in Kingfisher Airlines,
the way we know it today, would never have come into
being.

 May 2005: Mallya started his airline. Collaboration was

a far cry, when poaching of employees between the
two was rampant. In an atmosphere of mistrust, no
headway could be made on the merger.

 Dec 2006: After Gopinath realized he urgently needed

to raise money, Mallya and Gopinath met at the
former’s house in Mumbai and seriously discussed a
possible merger.
Sense of Deja-Vu
 Mar 2007: Anil Ambani invited Gopinath to meet him at
his Mumbai headquarters.
• Examined if there was a match of ideas and vision.
• Reliance Infocomm and Air Deccan had huge
synergies.
• If Reliance ADAG came in, it would be for life. In
return, they needed control.

 Apr 2007: A few investors did show interest in Air

Deccan, including Air Arabia, which was keen to pick
up a stake. US-based Texas Pacific Group (TPG) did a
due diligence and met the airline’s senior employees.
Sense of Deja-Vu
 May 2007: Reliance ADAG had started its due
diligence and had visited the Air Deccan headquarters
in Bangalore, according to sources.
 The CFOs and lawyers of both companies were
working out the details of the deal.
 Negotiations were in the final stages and Ambani
thought he had it in hand. He would invest over Rs
1,000 crore in Air Deccan for a controlling stake

 31 May 2007: Even before the Reliance ADAG-Air

Deccan deal could enter its definitive stage, Mallya
took the deal from under Ambani’s nose
Run up to the Deal
 Mallya acquired a 26 per cent stake in Bangalore-based Air
Deccan for Rs 550 crore. It was a quick deal, signed and
sealed in an incredible three days.

 The deal was struck at 4.45 a.m., after a 45-minute

conversation between Mallya and Gopinath. Calling from the
southern coast of France at 4 a.m. on 29 May, Mallya was
quick, to-the-point and persuasive.

 Four days earlier and virtually days before final closure

(ADAG), a senior Karnataka minister had intervened.
Air Deccan’s base and headquarter would not remain in
Bangalore.
Run up to the Deal
 Deal with ADAG was about to be closed and even if
Mallya offered Gopinath a better deal, it would take too
long to close. Still, he heard him out.
 Mallya came forward with a new proposal.
 No longer looking at merging the two
 26 per cent stake
 Three directors on the board
 A new CEO
 Mallya as vice-chairman himself.

 He would invest not from Kingfisher Airlines but from

UB Holdings, the group holding company.
Run up to the Deal
 Mallya’s offer was more palatable than Ambani’s.

 Mallya claimed Gopinath would continue to be involved

in the company — though he would not run it the way he
has till now.
 Mallya offered at least Rs 100 crore more (Per share
Ambani’s Rs 140 as against Mallya’s Rs 155).
 Captain’s equity and that of the main investors —
Mumbai-based ICICI Venture and Capital International, a
US venture fund — were getting diluted.
 Other terms, conditions and warranties of the deal were
onerous.
Advantage – Capt
Gopinath
 The Air Deccan brand and its low-cost nature would
continue.

 He would remain involved with the company.

 The beleaguered airline’s finances would stabilize.

 Consolidation in the Air line industry – the only

panacea
Barriers to Negotiation
 Structural Barriers
 Linkage with other negotiation – past, present, or future.
 Strategic Barriers
 The Negotiator’s Dilemma
 Psychological Barriers
 Rigid Mental Models – Merger would dilute the nature of Low
Cost Brand
 Partisan Perceptions – On Merger
 Cultural Barriers
 Kingfisher- Lavish; Air Deccan- Low Cost
Agreement details
 Ownership and price per share

 Kingfisher acquired 26% of stake in Air Deccan

 The deal was worth Rs 550 crores, shares were bought at
Rs 155 per share
 UB holdings will make an open offer to purchase 20% from
existing shareholders at above price

 Mode of payment

 Out of total Rs 550 crores, Rs 150 crores to be paid

immediately and rest Rs 400 crores by June
Agreement details cont..
 Structure of Board of Directors

 Board comprising of 12 directors

 3 directors to be elected by each airlines
 6 independent directors will be elected by combined
committee.

 Branding strategy

 Each airline to retain individual brand

 Kingfisher to service premium segment and Air Deccan to
cater to low cost segment
Agreement details cont..
 Sharing of facilities

 Ground facilities
 Crew: Pilots, cabin crew, ground staff
 Common spares inventory
 Integrated MRO operations

 Selection of CEO

 The current CFO Mr Ramkrishna Sundaram will take over

as CEO of Deccan Aviation
Agreement details cont..
 Chairmanship of Deccan

 Captain G.R.Gopinath will serve as Executive

Chairman
 Vijay Mallya will serve as the Vice-Chairman

 Future projects

 UB holdings will finance all future expansion plans of

Deccan
Thank You
Thank You