Jet snaps up Sahara for $500 mn in cash

Merged entity to have around 50% market share.

Jet Airways today said it would buy private carrier Air Sahara for $500 million (approximately Rs 2,250 crore) in cash, making it the largest player in the country's fast-expanding airline market.

Air Sahara will subsequently be merged with Jet Airways. The merged entity will lord over around 50 per cent of the market with a 79-aircraft fleet that flies to four Asian countries and London apart from domestic destinations.

While the Air Sahara brand will be gradually replaced by Jet over the next one year, the sponsorship of the Indian cricket team will remain with the Sahara group.

Announcing the deal at a hurriedly called press conference, Jet Airways Chairman Naresh Goyal said, "It will give us economies of scale, reduce cost of operations and grow revenues and profitability."

Within hours of the announcement of the deal, the Director-General of Civil Aviation sought details of the acquisition from the two companies. Sources close to the development said both the companies had agreed to provide the details.

The DGCA's query included the detailed plan of acquiring the infrastructure, parking bays, navigational facilities, night parking facilities and other airport facilities, the sources said.

Other private airlines said the acquisition could add to Jet Airways' share in the country's airport infrastructure.

Vijay Mallya of Kingfisher Airlines said, "I am more concerned about the airports and the infrastructure. With this acquisition, Jet Airways may get more parking slots and more aircraft. The government should look into sorting out infrastructure issues."

The announcement pushed up the sentiment at the Jet counter. Shares of Jet rose by 1.88 per cent to Rs 1,149.90 on a firm Mumbai market, raising the market capitalisation of the company to Rs 9,927 crore.

Jet's acquisition includes Air Sahara's fleet, parking slots and other facilities at airports in India and overseas.

Air Sahara, which began operations a few months after Jet Airways in 1993, has a marketing agreement with British Airways. Besides, it has seven landing slots (per week) at the Heathrow airport. It also has a code-sharing agreement with American Airlines to fly daily between New Delhi and Chicago.

Goyal clarified that his company would not take on the liabilities of Sahara on its balance sheet. He also said there were no plans to make Air Sahara the low-cost arm of Jet Airways.

Air Sahara expects to end the financial year with passenger revenue of Rs 2,228.3 crore, cargo revenue of Rs 88.3 crore and a net loss of Rs 17.5 crore.

Kotak Mahindra Capital Company advised Jet, while E&Y was Air Sahara's adviser to the deal.

Goyal said Jet had reached the enterprise valuation of $500 million of Sahara after a detailed study. He added, "We look at it from a serious business point of view and not from an emotional point of view. This will benefit our stakeholders."

On funding the deal, Jet Director Vic Dungca said the company would finance it from internal accruals. Goyal hinted that Jet might raise money from capital markets to fund its expansion plan.

Jet's board is due to meet on January 21 to consider its third-quarter results and an overseas issue of debt or equity.

Jet will examine the existing agreements that Sahara has with American Airlines and British Airways. "We do not want to duplicate the arrangements. There are some routes where both of us are present," Goyal said. However, it is not clear whether Jet would fly Sahara's US routes.

While a section of the industry analysts felt that the US routes were non-transferable, Goyal said, "We do not require Sahara to fly to the US as our application is in the process. Jet will fly to the US this very year, depending on the availability of aircraft."

Within hours of announcement of the mega deal in Mumbai, the Director General of Civil Aviation sought details of the acquisition from the two companies.

Sources close to the development said both the companies have agreed to provide the details. DGCA's query included the detailed plan of acquiring the infrastructure, parking bays, navigational facilities, night parking facilities and other airport facilities, the sources said.

Other private airlines said the acquisition could improve Jet Airways' share in the country's airport infrastructure.

Vijay Mallya of Kingfisher Airlines said, "I am more concerned about the airports and the infrastructure. With this acquisition, Jet Airways may get more parking slots and more aircraft. The government should look into sorting out infrastructure issues."