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Mallya said that Kingfisher and Deccan expected to save Rs. 3
billion, through combined operations, in the first year.11
He said that Deccan's network was a key asset that could be
leveraged. Synergies were expected to arise in the areas of
ground staff, aircraft, operation and maintenance, ground
handling, baggage handling, increased connectivity, feeder
services, and distribution penetration. Mallya indicated that
the airlines could achieve savings by sharing reservation
services, engineering services, service stations, spares,
pilots, other crew, and parking bays at airports.
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Also, both Kingfisher and Deccan operated identical
aircraft (the Airbus A-320 family and ATR-72-500). This was expected to
save engineering and maintenance costs for both the airlines. Earlier,
Deccan had posted a loss of Rs. 2.13 billion during the quarter ending
March 31, 2007.12 Kingfisher was
also reportedly losing an average of Rs. 120 million, on average
revenues of about Rs. 22 billion, every month.13
It was expected that the synergies achieved through combined operations
would improve the financial health of both the airlines.
The alliance was also expected to allow Kingfisher to achieve its goal
of operating flights on international routes. As of mid 2007, the Indian
government issued international operations permits only to those
airlines that had completed five years of domestic operations. As
Kingfisher was only two years old (it started operations in May 2005),
it would have had to wait for three more years to fly on international
routes. But acquiring a stake in Deccan, which would reach the
stipulated condition of five year of operations in 2008 (Deccan started
its operations in August 2003), could allow Kingfisher to fly to
international destinations starting in the second part of 2008. Mallya
said that he would have an internal arrangement to lease out Kingfisher
aircraft to Deccan 'to maximize the benefit of overseas routes'.14
In a report released in March 2007, the Center for Asia Pacific Aviation
(CAPA), an airline industry consultancy based in Sydney, had predicted
that increasing losses and excess capacity would result in consolidation
in the Indian aviation sector.15
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11] "Kingfisher-Air Deccan Combine to Realize Rs300 Crore in
Operational Savings in the First Year," www.domain-b.com, June 2, 2007.
12] Anurag, "Air Deccan on Troubled Sky, Kingfisher on
Rescue," www.labnol.org, May 24, 2007.
13] "Vijay Mallya Lands 26% Stake in Deccan Aviation," The
Hindu Business Line, June 01, 2007.
14] C.H.Unnikrishnan, "'Air Deccan Helps Our Overseas Plans',"
www.livemint.com, June 04, 2007
15] "Aviation Consolidation Looming in India: Outlook 2007
Report Released," March 7, 2007, www.centreforaviation.com.
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