Jet airwaysMerger of Jet Airways & Air Sahara

JET AIRWAYS
INTRODUCTION
Jet Airways (India) Ltd. is an airline based in Mumbai, India, operating domestic and international services. It operates over 330 daily flights to 50 destinations across the country and 6 overseas. Its main base is Chhatrapati Shivaji International Airport, Mumbai, with hubs at Indira Gandhi International Airport, Delhi, Anna International Airport, Chennai, Netaji Subhash Chandra Bose International Airport, Kolkata, Bangalore International Airport, Bangalore and Brussels Airport, Brussels According to the latest available figures, its share of India's domestic aviation market has increased to over 43% (up from less than 27% a few months ago), and this is still greater than any other Indian domestic operator's market share.[

HISTORY:
Jet Airways was incorporated as an "air taxi" operator on 1 April 1992. It started commercial airline operations on 5 May 1993 with a fleet of 4 Boeing 737-300 aircraft. In January 1994 a change in the law enabled Jet Airways to apply for scheduled airline status, which was granted on 4 January 1995. It began international operations to Sri Lanka in March 2004. Plans to acquire rival Air Sahara, announced in January 2006, after some rough patches deal got through. The airline is owned by Tailwinds (owned by Naresh Goyal) (80%) and public shares (20%) and has 10,017 employees (at March 2007).
Naresh Goyal, who already owned Jetair (Private) Limited (which provided sales and marketing for foreign airlines in India) set up Jet Airways as a full-service scheduled airline that would give competition to state-owned Indian Airlines. Indian Airlines had enjoyed a monopoly in the domestic market between 1953, when all major Indian air transport providers were nationalised under the Air Corporations Act (1953), and January 1994, when the Air Corporations Act was repealed, following which Jet Airways received scheduled airline status.
Lower wages in India compared with the West are not the only explanation for Jet Airways' relatively low cost base by international standards. The company has also been able to lower its costs by "sweating its assets", i.e. getting the maximum utilisation out of its aircraft fleet by minimising turnaround times between flights, similar to the leading European/North American low-cost, "no frills" carriers. This has partly helped it to offset the high costs of the airport infrastructure as well as jet fuel in India, which are higher in India than the international average

BRAND OWNERSHIP:
Jet Airways does not own its brand. The brand is owned by Jetair Enterprises Ltd., a separate company substantially owned by Naresh Goyal, which licenses the brand to the airline in return for an annual payment. This arrangement is very similar to the terms governing the use of the "easy" brand by the easyJet Airline Company Limited (the name under which easyJet has been incorporated). Under the aforesaid arrangement, Sir Stelios Haji-Ioannou, the founder and largest individual shareholder of easyJet Airline Co. Ltd. has sole ownership of the "easy" brand and licenses it to that airline for a specified payment. This kind of arrangement is of vital importance should the concerned airlines become the subject of a hostile takeover bid because the bidder[s] will not automatically acquire ownership of their takeover target's brand and without access to the brand the takeover target will be less valuable
MARKET EVALUATION:
Jet Airways has carried over 55 million passengers since the airline’s inception in May 1993. It reported a 140% growth in after-tax profit for the financial year ended 31 March 2004 on the back of healthy revenue growth and efficiency gains (ATI, May 2005). It carried 7 million passengers in 2005 with a fleet of 41 aircraft. During that year the airline is estimated to have had a 43 per cent share of the domestic market, operating over 275 flights to 42 destinations. In its initial years, the carrier was 40% owned by Gulf Airways and Kuwait Airways, but was dissolved several years later following a government decision banning foreign equity participation in private airlines. Until recently, it was fully owned by the Isle of Man-based company, Tailwinds, which in turn is wholly owned by Mr Goyal, CEO of Jet Airways. Jet is the first Indian carrier to raise funds via an IPO. In 2005 it sold a 20% stake raising $444 million. The stock market has valued the company at $2.2 billion (ATI, February 2005). The productivity of Jet Airways is more than twice that of Indian Airlines, with 168 employees per aircraft. The airline has had the distinction of being repeatedly judged India’s ‘Best Domestic Airline’ and has won several national and international awards. Jet Airways was granted bilateral rights to serve its neighbouring countries of Nepal and Sri Lanka in 2003. By 2004, the Indian Government had further liberalized the country’s traffic rights allowing the private carriers to operate services from India to member countries of the South Asian Association for Regional Cooperation (SAARC). These countries include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The move was initiated as India’s state-owned airlines were operating only 30 flights per week to this region while SAARC carriers were operating 88 weekly flights to India (ATI, Dec 2003).
Jet currently only operates to Singapore and Kuala Lumpur. By 2005, the Indian Government had further cleared the way for private carriers to operate on high-profile international routes, such as to London and New York, using bilateral rights that were unused by Air-India and Indian Airlines due to lack of aircraft. Jet immediately capitalized on this opportunity by leasing wide-body aircraft from South African Airlines, which are operating daily to London Heathrow. Shetty (2004) expects Jet’s international routes to account for 10-15 per cent of its turnover in 2005. It has interline agreements with 122 international airlines which allows passengers to use interline documents on Jet Airways for their travel. To further its expansion strategy, the carrier placed a substantial order for 30 aircraft at the 2005 Paris Air show. It currently hosts the youngest fleet in Asia where the average age of its aircraft is four years. Hooper (1997) states that new entrant strategies in India have been focused on use of modern aircraft, frequency and customer service.

AIR SAHARA
HISTORY:
In the fast changing Indian Aviation scenario, Air Sahara has unassailably established itself as one of the leading players in the Indian Aviation industry. It has constantly brought in new initiatives and has today developed into a wholesome airline, which offers benefits and services unmatched by any other domestic operator. Today, the Airline is on the threshold of a new dawn of success and consolidation. Air Sahara is part of the multi-crore Sahara India Pariwar. Sahara India Pariwar has interests in Public Deposit Mobilization, Media & Entertainment, Housing & Infrastructure, Tourism, Consumer Products and Information Technology. Starting on a modest scale and a capital of only Rs. 2000 in 1978, Sahara India Pariwar has traversed a long way to become an icon in Indian entrepreneurship.
Air Sahara began operations on December 3, 1993 following the Indian government's decision to open the skies to the private sector. It operated with a fleet of only two Boeing 737-200s. Today, its fleet includes advanced aviation technology New Generation Boeings 737-700s, 737-800s and Classics 737-400s and wide body 767-300 ER. The airline has also a fleet of 7 Canadair Regional Jets. The fleet also includes four highly advanced Helicopters (Dauphin and Ecureuil), which provide efficient charter services. Offering 134 flights with 13900 seats on a daily basis, Air Sahara flies to various destinations in India, which include important cities like Delhi, Bangalore, Mumbai, Kolkata, Lucknow, Hyderabad, Pune, Chennai along with regional destinations like Ahmedabad, Gorakhpur, Allahabad, Bhubaneshwar, Ranchi, Nagpur and others. The airline has recently added international destinations like London, Singapore, Colombo Kathmandu and Chicago (Code-share with American Airline) to its network. Air Sahara connects to 26 domestic and 3 international destinations with 120 daily direct flights and offer 13500 seats per day. The airline is currently undergoing a complete overhaul and restructuring exercise. Air Sahara has redefined itself in terms of an efficient and punctual airline with a high record of on-time-performance and dispatch reliability. Efforts are being made to increase connectivity and offer convenient timings.
A major investment program has been launched for the modernization and enhancement of its fleet. Fleet review and route rationalization have become the focus points of Air Sahara's strategy.
Many services such as In-flight entertainment and coach service were launched and today offer tremendous value adds to our esteemed passengers. Exclusive business lounges are being operated at departure halls at airports in a number of cities, providing for business and refreshment services. Recognizing the fact that customer satisfaction is the ultimate aim of the airline.
Air Sahara has taken the lead in introducing novel initiatives such as Steal-a-seat flexi fare options, Sixer/Super Sixer and Square Drive/Super Four. The Sixer initiative won the 'The Pacific Asia Travel Association' (PATA) award for the year 2003, at Bali, Indonesia.
Air Sahara's frequent flyer program called Cosmos has also become a great hit with the passengers as it offers faster accruals, lower redemption bars and requires no minimum balance for redemption. Very simply put, it is India’s fastest way to fly free. Interline agreements with almost 98 international airlines and 36 General Sales Agents spread all over the world makes it easy for a passenger to book a seat and obtain a ticket from any part of the world.

MARKET EVALUATION:
Sahara Airlines is part of the huge Sahara micro-banking empire that encompasses real estate, consumer products, media, small-scale loans and saving accounts. A former president of United Airlines, Rono Dutta, manages it. In 2003/04 it carried over 1.9 million passengers and 19,700 tons of cargo, operating 33,600 flights. It made a net profit of just over $220,000 (DGCA, 2003/04) after consecutive net losses of $8.5 million for 2002-03 and $36 million for 2001-02. The airline operates 20 short haul aircraft that connect 24 destinations with 123 daily flights. Unlike Jet Airways, it does not serve as a domestic feeder. The airline had originally planned to acquire larger Boeing 757s but was refused permission by the Government as state legislation then confined private operators to aircraft with 150 seats or less (Mhatrey, 1999). In early 2003, Air Sahara became the first airline to introduce regional jets into India. It ordered 20 Canadair CRJ-200 aircraft in order to link smaller towns with its hubs at Delhi, Hyderabad, Kolkata and Mumbai. It has 164 employees per aircraft operated.
Air Sahara has pioneered a number of innovative features for the Indian traveller, including standby fares, extra baggage allowance, airport valet services, etc. It also launched a significantly improved business class product and has managed to entice many business travellers from its competitors, Indian Airlines and Jet Airways (Ionides, 2003). Its uniqueness is also reflected by the manner in which it sells tickets, as it auctions its surplus capacity through the Internet and gives its customers the opportunity to pay for tickets over 12 monthly instalments at no interest via a local linkup with ICICI Banks. Kumar (2005) stated that Air Sahara’s strengths are “efficiency, outsourcing of maintenance, high fleet utilisation and creating sufficient backups in the utilisation model to maintain schedule integrity, ultimately reducing costs by up to 20%”.

ACQUISITION OF AIR-SAHARA BY JET AIRWAYS
Jet Airways takeover and aftermath On January 19, 2006 Jet Airways announced that it was to buy Air Sahara for $500 million in an all-cash deal. Everything, including Sahara's assets and infrastructure would belong to Jet Airways. This deal would have been the biggest in India's aviation history and the resulting airline the country's largest, had it gone through. Jet Airways management had planned to rename Air Sahara to "Trans Jet", with a separate corporate logo and livery.
The Indian Government had initially expressed its doubts on whether such a deal was legal, since no such deal had previously taken place in Indian Civil Aviation. However the Indian Civil Aviation Ministry ultimately gave approval in principle for the deal.
Market reaction to the deal was mixed, with many analysts suggesting that Jet Airways was paying too much for Air Sahara. The deadline for the deal to be completed was June 21, 2006, but in the days before this, the chances of the takeover being completed began to look shakier. Jet Airways claimed that a final sticking point was the government's delay in giving Jet chairman Naresh Goyal approval to be appointed to the Air Sahara board. Air Sahara countered that Jet Airways had engineered this impasse by delaying the request for such approval, as a way of extricating themselves from a deal they now regretted. Jet was said to be willing to go ahead with the deal only if the originally agreed price was lowered by 20-25% on the basis of Sahara's mounting debts, an option which was firmly rejected by Air Sahara. Finally both sides confirmed that the deal was off.
The Bombay High Court on Friday 22 September allowed Jet Airways to withdraw Rs 1,500 crore deposited by it for acquiring rival Air Sahara. "Jet will have the right to withdraw Rs 1,500 crore against bank guarantee of the same amount," Justice D K Deshmukh said in his order. The amount in the escrow account will go to Jet and the interest will go to Air Sahara. However, the escrow account formalities will be decided by an arbitration tribunal. Arbitration is to begin on 9 October 2006.
Buyout by Jet Airways
On April, 12th 2007 Jet Airways agreed to buy out its smaller rival Air Sahara for 14.5 billion rupees ($340m). The deal will give the airline a combined domestic market share of about 32%. Jet's attempt to buy Air Sahara last year collapsed but the company has said the new deal has been reached amicably. Both airlines also fly to international destinations and their operations and re-structuring will be merged. Jet Airways, founded by London-based former travel agent Naresh Goyal, controls about 24.5% of the Indian domestic aviation market. Air Sahara, owned by reclusive businessman Subroto Roy, controls about 7%.On April 16th Jet Airways announced that Air Sahara will be renamed as Jetlite.On April 20th Jet Airways paid Rs. 400 cr to officially take over Air Sahara.
AVIATION TAKE-OVER
In the biggest aviation takeover in India, Jet Airways has struck a deal to buy Sahara Airlines for Rs 2,300 crore (Rs 23 billion), a move that would help Naresh Goyal promoted carrier to become the biggest domestic carrier."They have agreed to buy Sahara for $500 million in an all-cash deal," sources in Sahara Group said within minutes of Jet Airways informing the Bombay Stock Exchange its board decision to acquire Air Sahara.In its communication Jet Airways informed the BSE that "the board of directors of the company has considered and approved the acquisition by the company of 100 per cent of the fully paid up equity share capital of Air Sahara."The deal is, however, subject to receipt of regulatory approvals as may be required.Sources said the deal was inclusive of all the liabilities of Air Sahara, which were brought down to about Rs 150 crore (Rs 1.5 billion) ahead of the takeover agreement.This would mean the acquisition of 27 aircraft fleet for about Rs 2,450 crore (Rs 24.50 billion), a price significantly lower than the valuation of up to $1 billion that Sahara Airlines had done through Ernst and Young. Sources said that Sahara had also agreed to forego its claim on Air Sahara brand and it was up to Goyal's company to decide the next course ofaction indicating that in next two-three months Jet would merge the brand in the parent company.On the Cricket's sponsorship that it clinched last month, Sahara sources said that this would continue to be with the group.Immediately after issuing a joint statement, Naresh Goyal said in Mumbai that while no liability would be transferred to Jet's balance sheet, the issue of international flying rights to his company would be subject to regulatory approvals.Stating that the deal would help Jet increase its market share from current level of 35 per cent to 40-45 per cent, Goyal said that absorbtion of staff from Sahara would be only on 'merit basis'.Sahara India confirmed that workers would "not lose their jobs... and gross emoluments will be unaffected. Upon closure of the transaction, based on requirements and performance, Jet Airways shall absorb suitable employees." As part of the deal, Sahara's assets including infrastructure and parking slot facilities in the country would now be owned by Jet. On the issue of price war in the aviation sector, Goyal categorically stated that "we are not planning to make it (Sahara Airlines) any low-cost carrier."Assuring maximum benefits to the shareholders, Goyal said due to economies of scale the cost of operations would go down substantially leading to improved revenues and profitability.
On source of funding the takeover deal, Goyal said all cash would come from internal accruals. Goyal also said that his company would approach the regulatory authority for merging the Air Sahara brand with the parent company.The existing agreements between Air Sahara and its clients/customers would be reviewed by Jet Airways.
Chairman Naresh Goyal told reporters in Mumbai that Jet is renaming Air Sahara Jetlite and will position it "between a low-budget and full-service carrier." The two airlines will be operated as separate entities although they will seek synergies in their domestic networks. | | | | | |