"Kingfisher may buy Spicejet in cash deal"

Mallya in talks to buy out Kansagra family & Istithmar. Open offer for 20% to follow

ANOTHER round of consolidation in the domestic skies looks imminent, with UB Group chairman Vijay Mallya engaging in talks with two major shareholders of SpiceJet to buy out the budget carrier in an allcash deal. According to industry sources, the Bangalorebased tycoon is negotiating with Gulf-based fund Istithmar and UK-based Bhulo Kansagra family, who together hold 26.33% in the low-cost airline. The acquisition of their stake by Mr Mallya would trigger an open offer for another 20% from other shareholders.

The Kingfisher chief followed the same strategy to acquire the country’s largest low-cost airline, Air Deccan, last year. Now, the budget carrier is being merged with Kingfisher. Going by the current share price of SpiceJet on BSE, a 26.33% stake in the company is valued at Rs 158.40 crore. The SpiceJet share closed at Rs 25 on Friday, up 7.76% over the previous day.

The Tatas also hold a minor stake in SpiceJet through two investment companies. There was speculation that they may take a larger role in the airline but the group nixed the buzz by insisting that the holding is purely a financial investment.

“Kingfisher has been in talks with SpiceJet for a possible stake acquisition for a month now. The Kansagra family and Istithmar are likely to exit the company. While Mr Kansagra is keen for an early deal, Istithmar is looking for good value,” an industry source said. Meanwhile, SpiceJet is also talking to a non-aviation investor for infusion of fresh funds, the source added.

Gurgaon-based SpiceJet has cut down its flights to 94 per day from 117 a day last month. The airline is not immune to the impending financial crisis in the aviation industry due to spiralling fuel prices. In a move to reduce losses, the low-cost carrier is reducing capacity in the market and sub-leasing aircraft. It has already sub-leased one aircraft to the Netherlands-based Trasavia Airlines. SpiceJet is planning to sublease two more aircraft shortly.

Kingfisher, along with low-cost arm Deccan, operates about 83 aircraft and operates 440 flights a day across the country. SpiceJet, which has nearly 11% market share, operates 94 flights a day with 15 Boeing aircraft. To expand its fleet and operations, the budget carrier is planning to raise $100 million from the market. While it has been looking for an investor for the past few months, it hasn’t yet got any.

With fuel prices at an all-time high, almost all domestic carriers are reducing capacity. Indian airlines, which lost about $1 billion last fiscal, are expected to double the figure in the current fiscal.

Mr Mallya’s move to acquire SpiceJet is expected to give Kingfisher enough muscle in the domestic market. If the deal goes through, the UB Group will hold a 40% share in the domestic market and set fare levels across key sectors.