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The merger between Kingfisher Airlines and Deccan Aviation may have created one of the biggest airlines in India, but the new grouping is also among the biggest loss makers in terms of accumulated losses. The combined accumulated loss of the merged entity totals about Rs 2,000 crore, putting it in the same league as other firms Fertilizer Corporation of India, Eastern Coalfields, Konkan Railway Corp, Tata Teleservices (Maharashtra), Idea Cellular, ITI, going by the previous fiscal year numbers.

The net loss for FY07 alone shows that the combined entity would have a loss of Rs 993 crore, second only to Fertiliser Corporation’s Rs 1,432.59 crore. The numbers highlight the difficult road ahead for the Vijay Mallya-Captain Gopinath-led management as they seek to build a profitable business amidst high costs and intense competition. The combined entity may have market share and fleet size but is financially on a weak wicket. The debt burden of the combined entity is over Rs 500 crore and is likely to rise further as it borrows more to buy new planes and maintain operations. Deccan’s net debt alone is Rs 350 crore as of year ended June 2007.

The combined operations will need about $250-300 million over the next two quarters and it may look at private placement of shares, UB group chief financial officer Ravi Nedungadi said. The Kingfisher-Deccan combined revenue is likely to top Rs 3,500 crore for the year ending March 2008 but that is little comfort for the company battling shrinking margins and stiff competition. Even the most profitable airline, Jet Airways was forced to report a loss for FY06. The company has turned around this year but other airlines have not been so lucky. Kingfisher Airlines posted a massive Rs 577 crore last year for the year ended March 2007 while Deccan Aviation made a Rs 419 crore loss. Industry experts don’t see a major turnaround in fortunes, at least, for the next one year as it will take some time for the benefits of consolidation to sink in and margins to improve.

Deccan Aviation lost 6% to Rs 277 while UB Holdings, which owns Kingfisher Airlines, rose 5.5% to Rs 1,144. But the losses don’t perturb the Mumbai-based Kingfisher Airlines. The company believes that the loss is in tune with its plans for Deccan and that it can break-even in 2008.

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