Deccan Aviation will merge the scheduled airline operations of unlisted Kingfisher Airlines, to create one of the biggest air carriers in the country and pave the way for the latter to fly overseas.

The combined operations will need about USD$250 million - USD$300 million over the next two quarters and it may look at private placement of shares, UB group Chief Financial Officer Ravi Nedungadi said.

India's top spirits maker UB group, which runs Kingfisher Airlines, bought a 26 percent stake in Deccan in May and subsequently raised it to 46 percent.

Deccan will be called Kingfisher Airlines after the merger and the charter operations of Deccan will be spun off into a separate firm to be equally owned by Deccan's founder G.R Gopinath and the UB group, Deccan said.

The combined entity will operate the two brands -- Deccan, a low-cost airline, and Kingfisher, a full service carrier, Nedungadi said.

"The two board's have taken a decision. The legal process will take anywhere between 4-6 months. From an organizational point of view the the integration is already on the fast track," he said.

The merger was recommended by consultancy firm Accenture and the merger methodology will be suggested by consultants KPMG and Dalal and Shah. "The merger will be structured in such a way to allow us to carry forward the accumulated losses," Nedungadi said. The two airlines have a combined loss of about INR20 billion rupees and this can be set off against future profits.

Nedungadi said the maintenance and engineering divisions will remain with the combined airline for now. UB group will also look at rationalizing capital expenditure.

The two airlines, which control more than a quarter of the market, have ordered more than 170 Airbus planes. Kingfisher's orders include wide-body aircraft for long-haul international routes.

"Deccan will fly to countries that can be serviced using A320 planes and Kingfisher, a premium carrier, will operate the long-range routes with its specialized planes," Nedungadi said.

The merger will help Kingfisher to meet Indian regulatory requirement of five year's operation to fly overseas. Deccan was started in 2003 and will be eligible to offer overseas flights by mid-2008.

UB group chairman Vijay Mallya will be the chairman and chief executive of the merged entity and Gopinath its vice-chairman, Deccan said in the statement.

India's fast expanding airlines posted a combined loss of about USD$500 million in the year to March 2007 and are resorting to mergers to stay afloat.

India's top airline Jet Airways bought unlisted Sahara Airlines in April and the Indian government merged two state-run airlines Air India and Indian Airlines in August.