Jet Airways' Attempted Acquisition of Air Sahara

            
 
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Case Details:

Case Code : BSTR219
Case Length : 17 Pages
Pages Period : 2005-2006
Organization : Jet Airways (India) Ltd and Sahara Airlines Ltd
Pub Date : 2006
Teaching Note :Not Available
Countries : Indian
Industry : Aviation

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"I believe that it is a good sign for the Indian aviation industry. This consolidation will lead to route optimization and rationalization." 1

- Siddhant Sharma, CEO, SpiceJet, commenting on Jet Airways' acquisition of Air Sahara in 2006.

"It makes good business sense for Jet, but there is a shortage of infrastructure in India, so allocation (of parking, landing, and take-off slots) has to be fair so low-cost carriers are not disadvantaged further." 2

- Jeh Wadia, managing director, GoAir, commenting on Jet Airways' acquisition of Air Sahara in 2006.

Jet Airways Spreads its Wings

On January 19, 2006, Jet Airways (India) Ltd. (JA) announced its decision to acquire Air Sahara (AS), the third largest airline company in India. It was to be the first acquisition in the history of Indian aviation industry. The deal valued at Rs.22.5 billion approx. ($500 million) was expected to enable JA, a leader in the airline industry, to further strengthen its position in the market.

With this acquisition, the company would have close to a 50 percent share of the Indian aviation market. In addition, the company would add aircraft, acquire more parking slots, more airline staff, and more international routes. The announcement of the deal received a mixed response.

Some of JA's competitors complained about the possible monopoly that JA would have on the limited infrastructure available at most Indian airports. Some analysts believed that the Indian airline industry as a whole would benefit from the deal, as it would reduce duplication of routes and lead to less fragmentation of the full service segment.3

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Others believed that the price paid was too high, considering the fact that AS was a loss-making airline company (Refer to Table I for financials of both the companies). The deal was also opposed by some members of the Indian Parliament, who believed that the acquisition could lead to the creation of a 'monopoly entity' in the Indian airline industry. Naresh Goyal, chairman, JA, responding to some of these concerns, said, "The deal has been done after doing thorough due diligence. The acquisition will give us economies of scale and will help improve revenues."4

The Indian Aviation Industry

The domestic aviation sector in India was thrown open to private players in the early 1990s with the implementation of the open skies policy by the Government of India (GoI). Until then, the air transport services in India had been provided by the state-owned air carriers, Indian Airlines Limited (IA) and Air India Limited (AI).

After the aviation sector was liberalized, a number of private carriers such as East West Airlines (EWA), ModiLuft, Damania Airways (DA), NEPC, AS, and JA entered the industry. 

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1] " For 2300 cr, Jet buys out Air Sahara, climbs to No 1 in sky," www.indianexpress.com, January 20, 2006.

2] Rina Chandran, "Jet Airways to buy Sahara for $500 million," http://in.news.yahoo.com, January 19, 2006.

3] As of early 2006, Indian Airlines, the state-owned airliner, JA, and AS were the only full-service airline companies operating in India.

4] "Jet snaps up Air Sahara for $500 million," www.tribuneindia.com, January 19, 2006.

 

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