The Hindu Business Line : Safe landing in the end

So Jet Airways has finally forged an agreement on the terms of its buyout of Air Sahara after a nine-month legal wrangle. For the moment at least, it is still unclear what prompted the two managements to seek a settlement outside the arbitration process initiated by Air Sahara. But this much appears quite clear: A legal victory for either party may well have turned out to be Pyrrhic. The opportunity cost measured in terms of managerial distraction, not to mention anxieties of investors/lenders supporting the venture, over the continuing legal wrangle would have far outweighed any gains for Jet Airways from a costly merger it may have avoided and for Air Sahara's promoters winning a suit for liquidated damages. Jet Airways may in time find that the initial misgivings, at least among the analyst community if not internally, over the purchase price are unfounded. Equally, the promoters of Air Sahara may realise that hard cash won today is worth a lot more than the promise of a bigger pay off that may happen at some distant time in the future from a successful prosecution of its legal case.

The latest development only serves to underscore a truism in strategic management literature that in acquisitions, once the process of due diligence has been gone through, it never pays to have second thoughts on either the strategic wisdom of the action contemplated or the negotiated price. By the very nature of such decisions, one can as easily build a compelling case for not undertaking the acquisition as for going ahead as originally planned. Similarly, on the question of valuation, there will be room for differing viewpoints considering that judgement over many intangible aspects can only be subjective.

In the case of the aviation industry in the country the issue has become all the more complex. The economy itself is in the midst of a structural shift in its growth path. The increasing prosperity among the public is opening up the market for air travel, both domestic and overseas, in a manner that is yet to fully unfold. Domestic passenger traffic has been growing at 40 per cent this year, but the presence of a number of new entrants, some with low-cost pricing strategy and others with more conventional approach to pricing, and the prospect of a shakeout in the near future are complicating the outlook on profitability. This is not to say that managements are not accountable for the folly of their actions. It is just that they must be allowed some leeway before their strategic decisions are subjected to a detailed scrutiny.

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