Jet Airways takes over Air Sahara

The Jet-Sahara deal has been nothing short of a ludicrous parody, where the merger has been beleaguered with problems since inception. A year later, amidst much renewed bonhomie, the deal has finally come through at an enterprise value of 1950 crore. It had initially paid 500 crore as cash advance, and bled another 180 crore into spares, lease renewals and other costs. It will now pay another 400 crore by April 20. It will use 120 crore from the assets of air sahara, and take on bad debts of 200 crore in its balance sheet. The remaining Rs 550 crore will be paid in four installments before March 30, 2008.

Air Sahara and jet airways both are contemporaneous airlines that commenced operations in 2003 with two aircrafts. They both have come a long way from flying in the northern states, to across the country, and both have forayed into international routes as well. The positives were in place for Air Sahara, before it decided to focus on core areas such as Housing and Para banking, and decided to exit the aviation industry in view of an environment of cut throat competition, excess capacity, dwindling margins, rock bottom prices, coupled with degenerated aircrafts. A strategic partnership was sought and jet airways was the indubitable fit.

On January 18, 2006, Jet Airway’s Naresh Goyal signed the share purchase agreement to take over the airline. With the June 18 deadline for payment approaching, it was struggling with the roadblocks and costs related to the integration. To avert its predicament, it conveniently spun from its ineluctable stance, and decided to withdraw its offer on the premise that the conditions precedent had not been met. The acrimony turned rancorous with arbitration underway.

The deal has been consummated now, but may not offer the synergies of integration as planned before. The combined entity will now hold a market share of 35% only and will face combined yearly losses of 75-80 crore. The period of convalescence has begun…!