The Hindu Business Line : How Jet Airways landed Air Sahara

Thank God for mobile phones and the short messaging service (SMS). But for this facility, reporting on the Jet Airways buy-out of Air Sahara would have been next to impossible. That is, of course, till the Jet Airways Chairman, Mr Naresh Goyal, and the airline counsel, Mr Harish Salve, came out to say that both the airlines had resolved all their disputes amicably thereby ending an acquisition process that began in January 2006.

At 1-53 p.m. on April 12, a cryptic SMS `done' gave the first inkling to Delhi journalists waiting at the Air Sahara office that the deal had finally been concluded. Curiously, a number of journalists got the same SMS from different sources at about the same time.

And, when journalists wanted details of the deal, again, it was SMS that came to their rescue. While basic information about the deal was made available through the statement made to the BSE, the finer nuances were communicated through SMS messages.

Enterprise Value

Five days, countless SMS messages and a few official statements later, what finally emerged about the deal is that Jet Airways will make a lumpsum payment of Rs 1,450 crore to Air Sahara. In Delhi, the Air Sahara President, Mr Alok Sharma, said the enterprise value of his airline was close to Rs 2,000 crore.

While he did not offer details about the deal, yet again SMS messages filled in with the data that the enterprise value for Air Sahara had been fixed at Rs 1,950 crore, including the Rs 680 crore that Jet Airways had already paid to Air Sahara; Rs 950 crore remains to be paid. The deal also will see some assets, such as the four helicopters and the personal business jet of the Sahara Group Chairman being sold back to Sahara.

According to sources monitoring the deal, what has been finalised now is no different from what was initially agreed to in January 2006. That deal, however, did not happen and in June the share purchase agreement between the two airlines lapsed. Since then both sides have been trading charges on why the deal failed. Then, in November both parties moved to arbitration to finally settle the deal.

Now that the deal has the stamp of the arbitration panel, any deviation would attract contempt of court charges. In January 2006, the agreement Jet Airways had inked was to purchase 100 per cent equity in Air Sahara for $500 million (Rs 2,217 crore). The agreement was for Jet Airways to acquire 27.6 crore equity shares (with a face value of Rs 10), five crore preferential shares and Air Sahara's loans.

Under the agreement, the entire aviation business of Air Sahara, including some aircraft leases, the lounges run by it and assets such as auxiliary power units and engines, being taken over by Jet Airways.

The Impact

What impact will the latest buy-out have on the Indian skies and the travelling public? Speaking to newspersons, the Air Sahara President said the agreement was good not only for the public, but also the industry and the promoters of the two airlines. "Not only does Jet Airways get to operate on our routes, it will also get the existing fleet and the 10 Boeing 737 aircraft that are being delivered to us. Besides, Jet Airways will also get a larger market share and more loyal customers," said Mr Sharma.

A section in the industry, however, feels that the buy-out could mean an end to low fares on some routes and the possible cutting down of some flights on the same sectors on which both Jet and Sahara operate within a short time of each other.

While there is no official word from Jet on its plans for Sahara, one thing that is clear is that brand Air Sahara will continue for another six months after which it would revert to the Sahara Group.

The thinking in some quarters is that Air Sahara could be operated as a low-cost airline under the Jet Airways brand name, especially as it has a fleet with largely all-economy configuration.

No 1 Private Carrier

The buy-out will make the new entity the largest domestic private carrier, with a market share of 42 per cent and a fleet of 88 aircraft including Air Sahara's 27. Incidentally, the entire fleet of Air Sahara that includes Boeing 737 and the smaller CRJ aircraft is on lease. For Jet Airways the buy-out is likely to help in its plans of going international. The airline has applied for rights to connect India to more international destinations including those in the United States, South Africa, Kenya, China and South-East Asia.

However, the question that still begs an answer is whether the sale would mean the exit of the Sahara Group from the aviation sector. In January 2006, the thinking within the Sahara Group was that the focus should mainly be on three ventures — para-banking, real-estate and media. The thinking within the group has not changed, with sources indicating that the funds generated from the sale are likely to be pumped into the real-estate development business.

In keeping with the developments of last week, the Sahara Group is officially not saying anything more than "wait for a few days, we still have some announcements to make."

Perhaps journalists need to keep their mobile phones fully charged and wait for SMS messages that may offer information on the plans, not only of the Sahara Group but also Jet Airways.

More Stories on : Mergers & Acquisitions | Airlines | Jet Airways (India) Ltd

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