Report on acquisition Of Air Sahara by Jet Airways

Submitted to Dr. Shounak Chowdhury 5)

Submitted by (Group Gaurav Sharma Manish Sharma Peeyush Sharma

Contents
Contents..................................................................................................................... 2 INTRODUCTION:..........................................................................................................3 HISTORY:....................................................................................................................3 Indian Aviation Industry:.............................................................................................3 JetSahara deal:..........................................................................................................6 Viewpoint of Jet Airways:.........................................................................................6 SWOT ANALYSIS:..................................................................................................7 Viewpoint of Air Sahara:..........................................................................................8 Conclusion :................................................................................................................ 9

INTRODUCTION:
"Pleased to announce the execution of a share purchase agreement for acquisition by Jet Airways India Limited of the entire capital of Sahara Airlines This was the joined statement released by Mr. Naresh Goyal, chairman Jet Airways and Mr. Subroto Roy, Sahara Group chairman at a press conference immediately after putting pen to the deal.

HISTORY:
Sahara Airlines was established on 20th September, 1991 and began its operation from on 3rd December, 1993.On 3rd October, 2000 Sahara Airlines was rechristened as Air Sahara. Earlier it was a domestic carrier but on 22nd March, 2004 it became an international carrier with flights between Chennai and Colombo, capital of Srilanka. It was a major part of Sahara India Pariwar.

Jet Airways was founded by Mr. Naresh Goyal on 1st April, 1992 and it started its operations from 5th May, 1993. Its major hub is Chatrapati Shivaji International Airport, Mumbai. It was initially a domestic carrier but it became an international carrier in 1994 with its flight between India and Srilanka. Presently it has the largest market share in Indian Aviation industry.

Indian Aviation Industry:

12th April is the main date in the history of Aviation of India when twomain private carriers made acquisition deal . It was followed with another mega merger between Air India and Indian Airlines which is
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countrys 2nd national carrier. Undoubtedly this clearly projects that Indian Aviation industry is jumping into the critical phase of consolidation since the state monopoly is already removed in the year of 1990, now sparking cut-throat competition in the very lower price sector that has wiped the major profit margins and ultimately giving the opportunity to common people to FLY. In order to stabilize the fares and also improving the efficiency of the aviation market , the cutting trend consolidation started by most famous Air India and Jet is likely to ultimately improve the long run prospects of the carriers that finally emerges from the main process. However, despite hidden logics of masterminds, the main success of this trend is with no guarantee. Both these deals are showing net result benefit for airlines as margins can be recovered. But undoubtedly both Air Indian and Jet are facing challenges. Indian Aviation Industry was undergone through unprecedented booming in its history and is growing affluence has fuelled demand for flying travel among India special ling target of middle class. In year 2006 the numbers of passengers of domestic fly increased by more than 30% to reach 33million only approx. 1% of Indian population fly by air, there was plenty space for future aspects. It can be expected that the number of air travellers to at least double 5year. This boom to fly had led to a profound path for airline- as of March India had 13 carriers and most of them were waiting for govt. approval to begin with their operations. Intense competition is for sure and evaporating profits. Domestic Airlines are for sure playing at lesser profit. Major players in this industry are Jet Airways Indian Airlines Kingfisher Airlines Air Sahara Air Deccan SpiceJet Indigo
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Among these Indian Airlines is public company and rest all are privately owned. Also, Air Deccan, Spicelet, Indigo are low cost carriers.

Market Share of Airlines in India is given below

JetSahara deal:
Jet Airways at first attempted to buyout Air Sahara on 19th January, 2006 offering them around $500 million in cash. Most people were thinking that the deal is highly overvalued as Air Sahara is not worth that much. Indian Aviation industry also gave its approval. But somehow this deal was cancelled due to disagreements over price. Also other major reason for its failure was the appointment of Jet airways chairman Mr. Naresh Goyal to the Air Sahara board. After the failure it became a pride issue for both the companies and they both filed lawsuits over each other seeking damages occurred to the reputations of both. This would further delay the return of Rs.500 crores which it had advanced to Air Sahara. Second major attempt to acquire Air Sahara was made on 12th April, 2007 and Air Sahara accepted it. It was a cut price deal and an out of court settlement which was around 40% cheaper than the earlier one. Reason for it was earlier was a share price purchase agreement and all the assets of Air Sahara would have been part of Jet. Hence as a result of finalization of this deal Jet will pay Air Sahara Rs 400 crore on or before 20th April and Rs. 550 crore in four equal interest free installments between march 2008 and march 2011. Also Sahara will keep Rs. 500 crore paid by Jet at the time of earlier agreement as part of deal. All the shares of Air Sahara will be transferred to Jet Airways. This price was significantly lower than the valuation estimated by Ernst and Young hired by Air Sahara. They valuated Air Sahara at around $1 billion. Air Sahara at the time of acquisition carried around Rs. 150 crores of liabilities but Mr. Naresh Goyal at a press conference stated Jet is not accountable for all these liabilities and thus it wont be transferred to its balance sheet.But cricket sponsorship of Air Sahara would remain with Sahara only.

Viewpoint of Jet Airways:

Jet airways even though was still the largest in terms of market capitalization but its market share was beginning to erode. Its profit margins were going down due to high expenses and lack of synergies. It still couldnt enter into the booming low cost carriers business as its fleet was not that large. So main options in front of them were either to increase its infrastructure or go
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into merger and acquisitions. Later of these was looking more feasible at that time.

SWOT analysis of the deal between Jet airways and Air Sahara is as follows-

SWOT ANALYSIS:
Strengths Market share of Air Sahara is around 12.5 % and of Jet Airways is 35-40 %. Thus this deal would further increase market share of Jet Airways. Expectations were around 50%. Jets current fleet strength is 63 and Air Saharas is 27. Hence it would increase the fleet strength of Jet Airways and then they could widen their network. Also it would help in creating economies of scale. Since business would expand. Air Sahara has a strong presence in neighboring countries to India such as Srilanka, Nepal, Bangladesh and Thailand. Availability of the parking slots in major national as well international airports which is very costly. Availability if skilled workforce of Air Sahara i.e. pilots, air hostesses, crew members and other personnel.

Weaknesses
Air Sahara was constantly losing its market share, thus how would they retain its market share under a new brand.

Many employees were not happy with this acquisition and hence question of their loyalty will arise. Jets profits were down by 53% in 2005-06. So difficulty in arranging the funds was a big deal.

Opportunities

Enter into low cost carrier market by completely or partially diverting the resources gained from purchase of Air Sahara to form a low cost carrier brand. Create more synergies through cross-utilization of staff and infrastructure.

Threats
Potential merger of Air India and Indian airlines and thus competition from public sector in aviation industry Price warfare. Also Jet wont be able to concentrate more on international market due to shortage of funds as most of them is spent on the deal with AirSahara. Workforce would go up to 10,000 which is difficult to maintain and thus downsizing is certainly needed which could create a negative impact on employees.

Viewpoint of Air Sahara:

Air Sahara was surely among the weaker players in the Indian Aviation industry with a market share of only 12.5%. Also balance sheets of Air Sahara was not looking very good as it was constantly making huge losses
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and unless a big step is taken it would go down further and further. Also its shares were not performing very brightly either. There were huge liabilities both long term as well as short term and its aircrafts were also on lease or on loan.Not much option was left for them other than a merger or an acquisition. Hence, it was an attractive and an easy bailout for Air Sahara from the aviation industry.

Conclusion :
After considering the present state of both Jet airways and Air Sahara and also keeping in mind the current scenario in Indian Aviation industry this acquisition was a good decision taken at the right time. This move will further strengthen the position of Jet in Indian Aviation industry and also provides opportunities to new market segments. For Air Sahara also its an easy bailout option. They can recover their money and invest it in other businesses of Sahara India Parivar. Thus, this deal is good for Aviation Industry as a whole also.