Karnataka HC clearance of Kingfisher-Deccan merger may be challenged by the Centre

Mumbai: Kingfisher may still have to clear a few air pockets before it can fly in clear skies, it would appear with reports suggesting that the Union ministry of corporate affairs may be all set to challenge a Karnataka High Court decision to clear the merger between Kingfisher Airlines Ltd and Deccan Aviation Ltd. If so, then the matter will now be taken up in the Supreme Court.

The new threat could not have come at a worse time for the full service carrier, recently merged with pioneering low cost carrier Air Deccan, as it battles rising costs of fuel and slumping demand along with other carriers. International services will allow the carrier to ease some of its financial burden as the cost of fuel is less on such routes.

It would also allow the carrier to optimise aircraft deployment, for its new wide-body orders would provide economical services on long haul routes.

The UB Group-promoted Kingfisher Airlines, a Mumbai-based full-service airline, acquired a majority stake last year in Deccan Aviation, which runs the country's largest low-fare carrier Simplifly Deccan (erstwhile Air Deccan).

It appears that the ministry of corporate affairs has issued a show cause notice to the UB Group for not complying with section 108(A) of the Indian Companies Act, which requires government approval if a takeover results in the merged entity gaining more than 25% of the market share. Together, Kingfisher and Deccan Aviation command a market share of 27.8%.

This is a little below the 30.1% market share commanded by the combined entity in May 2007, when the merger had originally taken place.

The ministry of corporate affairs is apparently waiting for a copy of the court's judgement.

On 7 July 2008, Deccan Aviation informed the Bombay Stock Exchange (BSE) that the Karnataka High Court had sanctioned the composite scheme of arrangement between Kingfisher Airlines, Deccan Aviation and Deccan Charters Ltd by an order dated 16 June. It also said the certified copies of the court order had been filed with the registrar of companies, Karnataka, at Bangalore on 2 July, making the scheme effective.

Kingfisher Radio Ltd owns 39.75% of Deccan Aviation while UB Overseas Ltd claims 9.98% as promoters, according to BSE data.

Anil Ambani-controlled Reliance Capital Ltd, through its various arms-Reliance Life Insurance Co. Ltd, Reliance Capital Trustee Co. Ltd and Reliance Capital Trustee Co. Ltd-owns 11.62% in Deccan Aviation.

While Vijay Mallya is now chairman of Deccan Aviation, its founder Capt GR Gopinath is vice-chairman.