Date:21/01/2006 URL: http://www.thehindu.com/2006/01/21/stories/2006012104781000.htm

Opinion - Editorials

Acquisitions and alliances in the air

Jet Airways' deal to acquire Air Sahara for about $ 500 million (or Rs. 2300 crore) has ended months of speculation on the future of Air Sahara, which was up for grabs for some time now. More than in the capital or asset value, it is in the entrepreneurial advantages and the rights Air Sahara holds in the various domestic sectors and airports, as well as the licence to fly a few international routes, that its true value lies. Although others in the aviation industry, including rival Kingfisher, were also interested in the acquisition, the price tag apparently kept them out. Jet Airways has taken its own time to work out the deal, under which it says it will not take on the liabilities of Sahara. The deal has distinct advantages for both the parties — it can make Jet the major player in the domestic sector, with a market share of nearly 50 per cent in traffic, and bale Air Sahara out of its mounting liabilities. Going by market reports, much of the Rs. 2300 crore may go towards settlements of dues and debts. Further, the deal marks the first major step towards consolidation in the Indian aviation industry which has witnessed unplanned and unbridled growth over the past few years. The two airlines were among the first to enter the field when it was opened to the private sector. It remains to be seen what lessons the more recent entrants will draw from the Jet-Sahara deal — they will have to decide if it will be advantageous to remain separate or go in for consolidation through mergers and acquisitions.

The acquisition deal needs to be cleared by the regulators. At stake are not just the fleet of 26 aircraft — all of them are on lease — but the parking slots, airport facilities, and landing rights or routes that Air Sahara now holds. With a combined fleet strength of nearly 80 aircraft and a market share of almost 50 per cent in passenger traffic, Jet Airways clearly wants to emerge as the lead player in the domestic sector and get a fair share of the regional/international routes that are now in private operation. These include destinations in South East Asia, South Asia and Europe. While Jet has rights for London and an understanding with British Airways, it has not been able to get clearance for the U.S. At a time when international airlines have gone in for global alliances to leverage the regional strengths of partner airlines, the move by Jet to acquire Sahara may trigger a process of consolidation in the domestic sector. It remains to be seen how the Centre and the public sector Indian (formerly Indian Airlines) respond to it. Now that the Government has cleared the fleet acquisition scheme, Indian has to pull up its socks and prepare itself for the competition from private airlines. For Jet Airways, funding the takeover of Sahara, in addition to the financing of its own fleet acquisition programme, is sure to pose a major challenge. Its financing strategy has to be made clear to the market.