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Jet-Sahara deal — Flying high on synergies

Ashwini Phadnis


Growth takes off in a big way: Once the Sahara deal is completed, Jet will have more than 50 per cent market share of domestic air traffic.

"WELCOME on board the final flight of Air Sahara. We thank our valuable customers for their patronage over the past 13 years and look forward to their continued support in our other ventures." While no one knows whether this announcement will be made on Air Sahara's last flight, one thing is certain: Air Sahara, which started operations in 1993, will soon be out of the skies.

The airline did have its moments of glory and has a number of firsts to its credit — the bid-and-win programme that had customers looking forward to a bargain in the air, as they bid for a variety of products at low prices; live musicians on board flights; and the distinction of being the first private domestic airline to fly the international skies when, on March 23, 2004, its first international flight left Chennai for Colombo.

So, what prompted the decision to exit the airline business? Officials at Ernst and Young, consultants to Air Sahara on the deal, maintain that the decision to exit the airline business is part of the Sahara group's plan to concentrate on such core areas as housing and parabanking.

People connected with the sale say the airline management was open to looking at all options, including getting on board a strategic investor and even bringing in private equity. Private equity funds spoke to a number of low-cost airlines but were convinced that the model would not be feasible because of a number of infrastructure bottlenecks. "Hence, it made sense to invest in a legacy carrier like Air Sahara," sources said.

Besides, there was a feeling that even if funds were raised, there would be problems with aircraft acquisition. With demand for aircraft increasing globally, the two aircraft manufacturers were said to be "acting up". And though money could have been raised through an IPO, its utilisation would not have been fast enough for the airline.

Only after all these possibilities were considered was the option of strategic partnership brought up.

Eventually, the Sahara top management veered round to the view that it would be best to exit the airline business and focus, instead, on other areas the group was involved in.

While a number of other airline companies made noises about being in the running for picking up Air Sahara, those connected with the process revealed that Jet Airways enjoyed an edge right from the start.

"We knew right from the start that Air Sahara and Jet were a perfect match. There was so much commonality between them, including the types of aircraft they operate. It was made clear to all the other airline companies interested in the deal that their offers would be considered, but they would not necessarily be the first choice," an official connected with the deal said. But did the financial health of the company have anything to do with the sale? "Air Sahara was healthier than many other companies. It was sitting on more than Rs 500 crore of promoter funding, including equity of Rs 236 crore, preferential shares of Rs 50 crore, and group loans of Rs 250 crore. Most other promoters put in about Rs 40-50 crore," the Head, Transactions, Ernst & Young, Jayesh Desai, said.

The data available with the Directorate General of Civil Aviation (DGCA) shows that while Air Sahara made a net profit after tax of Rs 96 lakh during 2003-04, it recorded a net loss after tax of Rs 37.75 crore during 2002-03 and a net loss after tax of Rs 159.92 crore during 2001-02.

Now that the sale has been inked, what is next? Sources in Jet Airways and E&Y maintain that Jet Airways will take over the lease of all the 27 Air Sahara aircraft. "The Air Sahara aircraft will probably have to be sent abroad for repainting and will need to be upgraded to Jet Airways standards. Only after that will the aircraft will be used on routes. The smaller aircraft will be used to operate flights on feeder routes," an airline official said. Jet is likely to take all the pilots, technicians and top management of Air Sahara.

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