'Deccan, Kingfisher need better value proposition'

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Kapil Kaul , CEO - India Subcontinent, Center for Asia-Pacific Aviation , said both managements of Deccan and Kingfisher, may not actively considering a reverse merger, because both are going through a massive integration process.

Excerpts from CNBC-TV18's exclusive interview with Kapil Kaul:

Q: That story of a reverse merger not being on the anvil is not really flying with the markets currently. Give us an idea of why go in for a reverse merger? Is this environment right for the two companies?

A: One thing is that both managements are perhaps looking at various options. Reverse mergers could be one option. But there is enough on the plate for both the carriers, because they are going through a very massive integration process. That process would take another few months.

In the summer of 2008 the integration in a more coordinated structure between these two companies would be ready.

So the priority right now as you rightly said, is not actively considering whether it's something that could be on their radar. But right now the main objective is to integrate the two companies, make sure the value proposition is integrating two large companies with similar aircraft fleet and other critical structures and create a lower cost structure. Create a better value proposition and then to look at options whether reverse merger is needed. So at this stage, I don't think they are actively considering reverse merger.

Q: What would be the trigger of that reverse merger? The fact that Kingfisher would not be able to start off international operation, do you think that would probably propel them to look at the merger option more actively?

A: That could be an option, but going forward, Deccan qualifying to fly international and within the next few months the GoM would allow Kingfisher to go overseas too so. Going forward in next six months, Deccan would qualify first and then Kingfisher would qualify.

And what are the advantages perhaps of keeping them as separate companies if they both qualify to do international is that they could perhaps qualify for higher bilateral entitlements than as a single entity. One of the options we need to consider going forward if they keep as two separate subsidiaries they might have an access to higher bilateral entitlements than as one company.