Jet Airways makes first merger move

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A major shake-up is on its way in India after Jet Airways agreed to acquire rival Air Sahara in the first consolidation deal since the government opened up the market to new entrants

The Mumbai-based Jet Airways board met last month and approved the acquisition of 100% of Delhi-based Air Sahara, which is wholly owned by the Sahara Group conglomerate. Specific terms are confidential, but the airline says the all-cash deal is worth around $500 million and that it does not include the assumption of Air Sahara’s debts.

The takeover remains subject to government approvals, but most industry observers expect it to receive regulatory clearance as many have been calling for consolidation in the fast-expanding market. Some analysts say mergers among other airlines may now follow.

Air Sahara and Jet Airways are India’s largest privately owned carriers with a combined domestic market share close on 50% (see table). Jet Airways is even larger than state-owned Indian Airlines, which is its closest competitor at around 25% market share. Both Jet Airways and Air Sahara have extensive domestic networks and limited international operations, and they were the only survivors from the Indian government’s first attempt at liberalisation in the early 1990s, when more than a dozen new carriers launched services.

Air Sahara will continue to operate separately in the near term, but eventually Jet Airways will absorb the smaller airline’s aircraft, airport facilities and technical operations, after which the Air Sahara name will disappear. A joint integration team has already been established that is headed by senior executives from both airlines, and there are indications the merger could be completed in a matter of months.

Predictions about consolidation in the Indian market have been intensifying in the past year, during which five new scheduled carriers launched on the back of huge growth in demand. Last year’s new players were Air India Express, Go Airlines, Kingfisher Airlines, Paramount Airways and SpiceJet, and they lifted to 12 the number of scheduled airlines operating in the country, following the launch of India’s first low-fare carrier, Air Deccan, in late 2003.

There are still many groups planning to launch airlines this year, following government moves to ease restrictions on airline operations and promises of infrastructure improvements, after so many years of growth in air travel being held back in favour of rail travel.

Delhi-based Air Sahara had been on the market for some time as it needs cash to expand and its parent was not willing to make the necessary investments, while Jet Airways is financially comfortable following a successful public offering last year. Recently launched Kingfisher was considered a front-runner in the bidding for Air Sahara, but its flamboyant chairman, Vijay Mallya, said in withdrawing his offer shortly before the Jet Airways deal was confirmed that the asking price was far too high. Many industry observers see the Jet Airways move as one intended primarily to keep Kingfisher and other new players from becoming stronger competitors.

The fleets of Air Sahara and Jet Airways are not radically different, as both operate Classic and Next Generation Boeing 737 narrowbodies on the majority of their routes. Jet Airways has more than 50 aircraft, some 40 of which are 737s, which it acquired through a mix of lease and purchase. It also has eight ATR 72s and three Airbus A340-300s, in addition to firm orders with Airbus and Boeing for 10 A330-200s, 10 777-300ERs and 10 more 737-800s.

Delhi-based Air Sahara operates nearly 30 leased aircraft, around 20 of which are 737s. It also has seven Bombardier CRJ200 regional jets and one recently added 767-300ER that it leased for new London Heathrow services. ■

NICHOLAS IONIDES / SINGAPORE