JET SAHARA MERGER

The Fly of Joy

Introduction of Global Aviation The World War II, the first commercial airplane

routes were set up in Europe. Over time, air travel has become so commonplace

that it would be hard to imagine life without it. The airline industry exists in an intensely

competitive market. It has also altered the way in which people

live and conduct business by shortening travel time and altering .

2000 Airlines operating more than 23,000 aircraft providing service to over 3700 airports.

In 2006, there were 28 million scheduled flight departures and carried over 2 billion passengers

The growth of world air travel has averaged approximately 5% per year

Annual growth in air travel has been about twice the annual growth in GDP

Expected to double over next 10 – 15 years

Categories of airlines industries

International National Regional Cargo

Indian Aviation Industry

The Civil Aviation industry has ushered in a new era of expansion.

India is the ninth-largest civil aviation market in the world, with a market size of around US$ 16 billion.

The world is focused on Indian aviation – from manufacturers, tourism boards, airlines and global businesses to individual travelers, shippers and businessmen.

Market Size

In January 2016, domestic air passenger traffic rose 23 per cent to 7.66 million from 6.25 million.

Passenger traffic during the January-December 2015 increased at a rate of 20.3 per cent to 81.1 million from 67.4 million in the corresponding period a year ago.

In January 2016, total aircraft movements at all Indian airports stood at 156,048, which was 15.9 per cent higher than January 2015.

International and domestic aircraft movements increased 10.6 per cent and 17.5 per cent, respectively, in January 2016

Indian domestic air traffic is expected to cross 100 million passengers by FY2017, compared to 81 million passengers in 2015, as per Centre for Asia Pacific Aviation (CAPA).

India is among the five fastest-growing aviation markets globally with 275 million new passengers the airlines operating in India are projected to record a collective operating profit of

Rs 8,100 crore (US$ 1.29 billion) in fiscal year 2016, according to Crisil Ltd.

Government Initiatives

Airports Authority of India (AAI) plans to develop city-side infrastructure at 13 regional airports across India, with help from private players for building of hotels, car parks and other facilities, and thereby boost its non-aeronautical revenues.

The Government of India has given site clearance to Delhi Mumbai Industrial Corridor and Development Corporation (DMICDC) for setting up of a Greenfield Airport for public use near Bhiwadi in Alwar district of Rajasthan and has granted 'in-principle' approval to 13 other Greenfield airport projects

Airlines in India Indigo Airlines Jet Airways Air India Air Asia Spice Jet Go Air JetLite Air Costa

History of Sahara Airways

Sahara Airlines was a passenger and cargo airline founded in 1993 in New Delhi, India.

Sahara Airlines flew to major Indian cities and a few international destinations. In 2001, the airlines was rebranded and restructured by its owners with the new name “Air Sahara.

Air Sahara flew to about 20 destinations and controlled about 12 percent of India’s domestic flight market during its peak as an independent entity.

History of Jet Airways

Jet Airways is an Indian airline based in Mumbai. It is the second largest airline in India, both in terms of

market share and passengers carried, after Indigo. It operates over 300 flights daily to 74 destinations worldwide

from its main hub at Mumbai, Delhi, Chennai and Kolkata. Jet Airways was incorporated as a limited liability

company on 1 April 1992 The company was listed on the Bombay Stock Exchange and

became public on 28 December 2004 with Goyal retaining 51% ownership of the stock.

Jet Sahara Merger

Important Dates

23/01/2006: Jet-Sahara deal: It is all deal started with Rs. 2300cr

13/05/2006: MRTPC tells DG to submit report on Jet-Sahara deal

13/04/2007: Air Sahara in Jet Air fold for Rs 1,450 cr 14/04/2007: Safe landing in the end 17/04/2007: Air Sahara renamed Jetlite 21/04/2007: Jet Airways completes Sahara

acquisition

Acquire Target

Jet Airways had valued Air Sahara at about 500 million dollars (Rs2300crores) initially.

However, subsequent negotiations between Jet Airways owner, Mr. Naresh Goyal and the Air Sahara team settled the deal at 450 million dollars (Rs2100crores).

The initial valuation of Air-Sahara seemed to be very high, given that the carrier was sitting on Rs 96 lakhs of loss in the just concluded financial year.

This feeling among the industry analysts were reflected when the Jet Airways share experienced a sharp decline with the announcement of the deal. Finally deal was closed on 1450 crore.

Motives for acquisition The merger of Jet and Sahara gave Jet Airways access to the

entire leased fleet of 27 aircrafts of Air Sahara along with its infrastructure and logistics.

Air Sahara proved to be complementary to Jet even in the international arena.

While Jet was operating on long haul routes such as US and Europe, Air Sahara operated to neighboring countries such as Sri Lanka, Nepal and Thailand. Jet had about 62 aircrafts and operated 320 flights to 44 domestic destinations and 6 foreign destinations at the time of the deal.

One major gain for Jet in the deal was that it could gain access to Sahara’s parking slots in London’s Heathrow airport as well as in Delhi and Mumbai.

Another factor was that there was a huge shortage of airline pilots.

Since Air Sahara had leased all of its 27 aircrafts, so there was not much gain in terms of tangible assets especially since Air Sahara was not transferring its real estate and helicopters.

The plan was to take over all of Air Sahara’s assets for $545 million.

Jet Airways have a 40 percent market share which fell down to 27 percent at the time of the deal.

The major reason was Jet’s intention of becoming the king of Indian skies by becoming the number 1 private airlines in the industry

The Combine EntityJet Airways Air Sahara Combined

EntityFleet Size 53 27 80

Destination 44 24 68

Number of seats a day 33,500 13,900 47,400

Number of flights a day 300 134 434

Percentage market share 35 12 47

Operational Fit Air Sahara Operational Fit The load factor of Jet in its

international flights was 73% and in domestic flights was 72%. Air Sahara had a load factor of 72%on domestic route and

65% in international flights. So, using the expertise of Jet, Air Sahara could gain.

Sahara had 4 international destination, Jet Airways also had international flights to those destinations from the same source.

Deal of Jet and Sahara Jet Airways announced its first takeover

attempt on January 19, 2006, offering 2300 crores rupees in cash for the airline.

The Indian Civil Aviation Ministry gave approval in principle, but the deal was eventually called off over disagreements over price and the appointment of Jet chairman Naresh Goyal to the Air Sahara board.

Target Valuation

The entire business of Air Sahara was valued at Rs. 2300 by Jet Airways.

whereas the valuations by E&Y for Air Sahara were done at Rs 3382 crores.

The valuation has been made on the comparable value with respect to the valuations of Jet Airways. Only the assets will be acquired, liabilities to be borne by Air Sahara itself

Target Valuation (Revised)

After the deal Jet’s valuation slipped by around 35%, so the new valuation of Air Sahara was done at35% lower valuation of Rs. 2300 crore i.e. Rs. 1450 crore Rs. 900 crore were paid immediately but .

The balance of INR550 crores were payable in four interest free annual equal installments. The entire deal was done through debt, majority from IDFC, the company’s long standing banker.

Synergy The cost saving of Rs. 150 crore -200

crore was achieved due to acquiring of parking bays.

The ticketing costs were reduced for JetLite by moving to web platform Increased customer based helped them reduce cost of operation 50% Reduction of staff due to synergies.

Post merger integration After the merger the Air Sahara planes were

immediately brought into service. Only 20 of the 26 of Sahara are actually flying. Jet infused another Rs. 200 crore for refurbishing

the entire fleet Bulky insurance policies were removed to short term cost efficient policies.

Post Merger of Jet Lite Limited Business Trend

2010 2011 2012 2013 2014Revenue (₹: INR lakhs

157947 178615 190386 210136 176364

Profit (₹: INR lakhs

4619 -10747 -18403 -29523 -42931

Departure 39602 39003 41992 38160 31986Load Factor 75 79.2 77.9 74.8 72.1Number of aircraft

25 19 19 15 12