TRENDS Jet Airways – Air Sahara merger “Lite” at the end of the Tunnel 24 Need the Dough July-October 2007
MERGERS & ACQUISITIONS <strong>The</strong> Mumbai-based Jet Airways board met in December 2005 and approved the acquisition of the 100% Delhi-based Air Sahara, which is wholly owned by the Sahara Group. Specific terms were not disclosed, but the airline said that it would be an all-cash deal worth around $500 million and it didn’t include the assumption of Air Sahara’s debts. <strong>The</strong> takeover - the biggest in India’s aviation history – would create the country’s largest airline. Jet Airways, which was founded by a London-based former travel agent Naresh Goyal, controls about 35% of the Indian domestic airline market. According to analysts the deal would help the company consolidate its position in India’s flourishing aviation market. Air Sahara, owned by the reclusive businessman Subrata Roy, controls about 12% of India’s market. Air Sahara and Jet Airways are India’s largest privately owned carriers with a combined domestic market share close to 50%. Jet Airways is even larger than the stateowned Indian Airlines, which is its closest competitor with around 25% market share. Both Jet Airways and Air Sahara have extensive domestic networks and limited international operations, and they were the only survivors from the Indian government’s fi rst attempt at liberalisation in the early 1990s, when more than a dozen new carriers launched services. Mr. Goyal said there were no plans to convert Air Sahara into a low cost carrier. Air Sahara would continue to operate separately in the near term, but eventually Jet Airways would absorb the smaller airline’s aircraft, airport facilities and technical operations, after which the Air Sahara name will disappear. A joint integration team was thus formed under the vigilance of senior executives from both the airlines. Delhi-based Air Sahara has been in the market for some time as it needed cash to expand and its promoters were not willing to make the necessary investments, while Jet Airways is fi nancially comfortable following a successful public offering. Kingfisher was considered a front-runner in the bidding for Air Sahara, but its flamboyant Chairman, Vijay Mallya, said while withdrawing his offer shortly before the Jet Airways deal was confi rmed, that the asking price was far too high. Many industry observers see the Jet Airways move as one intended primarily to keep Kingfisher and other new players from becoming stronger competitors. <strong>The</strong> fleets of Air Sahara and Jet Airways are not radically different, as both operate Classic and Next Generation Boeing 737 narrow bodies on the majority of their routes. Jet Airways has more than 50 aircraft, some 40 of which are 737s, which it acquired through a mix of lease and purchase. It also possesses eight ATR 72s and three Airbus A340-300s, in addition to fi rm orders with Airbus and Boeing for 10 A330-200s, 10 777-300ERs and 10 more 737-800s. Delhi-based Air Sahara operates nearly 30 leased aircraft, around 20 of which are 737s. It also has seven Bombardier CRJ200 regional jets and a recently added 767-300ER which it leased for the new London - Heathrow services. <strong>The</strong> deal could also mean more international routes for airlines, as Jet Airways and Air Sahara were the only two private Indian carriers who were permitted to fly overseas. Jet runs 271 scheduled fl ights daily within India. It recently won the government’s permission to fly to London, Singapore and Kuala Lumpur. Air Sahara operates 134 fl ights daily in India. It has recently begun flying to US, London and Singapore as well. According to aviation analyst Alok Dayal, the takeover would not affect the passenger fares much in an <strong>The</strong> fleets of Air Sahara and Jet Airways are not radically different, as both operate Classic and Next Generation Boeing 737... industry which has seen explosive growth due to the entrance of low cost carriers. “Both Jet and Air Sahara are full-cost airlines and do not offer low fares as compared to low cost carriers. So I think the low cost carriers will continue to give competition to these airlines”, he said. Hiccups: That the proposed merger between Jet Airways and Air Sahara would not go ahead, is news which came as a heavy blow to the Indian aviation industry. Airline officials have said that the merger worth USD500m has fallen through due to a combination of procedural delays and disagreements between the two airlines. <strong>The</strong> deadline for the merger was 21st June 2006. With the approach of the deadline for regulatory approval, Air Sahara was willing to extend the deadline by 15 days, but Jet Airways did not agree to an extension unless the purchase price was reduced by 10-20%. Later, Air Sahara rejected this proposal. Questions from the Indian government regarding airport-landing slots, is another reason which had jeopardized this planned merger between Jet Airways and Air Sahara. According to the media, India’s civil aviation authorities are questioning all of Air Sahara’s landing slots being transferred to Jet Airways. <strong>The</strong> authorities reportedly fear that the merged airline could have too much control over airport parking bays. A July-October 2007 Need the Dough 25
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