The Premier domestic airline, Kingfisher Airlines and India’s largest budget carrier, Deccan Aviation have announced their decision to form one corporate entity.

The merger is expected to generate annual synergies between $80 million and $100 million. The new company will start its operations by the coming year (2008).

The Vijay Mallya-owned UB Group had purchased a 26% stake in Deccan in May, and this will increase its total stake to 46%.

Vijay Mallya, chairman of the UB Group said, “Apart from synergies, better productivity and lowering operational costs, the merger will enable us to fly overseas from August next, especially across Europe and the US. The Kingfisher will fly to far-off destinations in Europe and the US, while Deccan will operate in the Asian and Gulf region, with more flights to Saarc and South East Asian countries.”

He further said, “We will not only retain our brand entities, but also make optimal use of capital-intensive resources to leverage our respective business strengths.“

Kingfisher and Deccan currently operate a combined fleet of 78 Airbus and ATR aircraft; Kingfisher has 106 new Airbuses on order - including five superjumbo A380s while Deccan has 54 Airbus A320 family aircraft awaiting delivery.

After the merger, Vijay Mallya will serve as chairman of the new entity, while co-founder of Deccan Aviation, Gopinath will be its vice-chairman.

Kapil Kaul, chief executive for the Indian subcontinent and the Middle East at the Center for Asia Pacific Aviation said, “The accumulated losses of both airlines are around $500 million and they could offset these against future profits, as well as cut costs by operating joint back-end operations.”

While, an airline expert and investor said, “I don't know if this would work. Mixing everything in one company doesn't work. It will have a full-service airline, a no-frills airline, plus international operations under one umbrella.''

The stock of Deccan Aviation closed, on Thursday, at Rs. 278 on NSE. The stock touched an intraday high of Rs. 330 and low of Rs. 272.