The Hindu Business Line : Jet, Air Sahara arbitration begins on Monday

With the arbitration proceedings between the two set to begin in Mumbai from Monday, there is speculation on whether an out-of-court settlement would be reached quickly or the case would drag on.

Pre-conditions

In January 2006, Jet Airways had agreed to purchase Air Sahara for a consideration of Rs 2,217 crore. The deal, however, fell through and both parties agreed to refer the matter to arbitration. The basic issue that both the airlines are said to be contesting is whether pre-conditions for the sale to go through had been met or not.

Air Sahara claims that such conditions had been met as all Government clearances involved with the deal including setting up of the board were received and therefore Jet Airways should close the deal after paying the agreed amount.

This, however, is contested by Jet Airways that claims that as there was no clear aviation policy of the Government, the condition precedent (as the pre-conditions are technically called) had not been met.

Sources told Business Line that while one party is keen on an out-of-court settlement and has sent several feelers to the other airline to try and reach an agreement, the advances have been spurned.

Negative impact

The only open indication of the impact that the arbitration could have on the fortunes of the airlines came last month when Jet Airways informed the BSE that its auditors were unable to express an opinion on an outstanding of more than Rs 2,100 crore including loan of Rs 180 crore to Sahara Airlines Ltd, an advance of Rs 500 crore to shareholders of Sahara Airlines and a bank guarantee furnished by Jet Airways for Rs 1,500 crore to Air Sahara.

There is speculation that if the airline accounts for these outstanding then it could have a negative impact on its balance sheet.

Sources indicated that if the case went against Jet Airways, the airline could have to pay Rs 2,500 crore or more for expenses that Sahara would have incurred since June last year.

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