New Delhi: Jet Airways has acquired Air Sahara for an estimated $500 million in an all-cash deal. The merger may be completed in 2-3 months time.
Chairman of Jet Airways, Naresh Goyal says that they are not planning to position Air Sahara as a low cost arm of Jet, and the Air Sahara employees will be absorbed on a merit basis only.
He adds that they will assign a management team to review Air Sahara's existing deals and no liability will come on Jet's balance sheet.
Goyal further adds that, international flight rights transfer is subject to regulatory approval.
Excerpts from an interview with Naresh Goyal:
Tell us about this acquisition of Sahara?
We have valued the whole enterprise at $500 million and it is subject to all regulatory approvals.
What are the liabilities of Sahara?
We are not getting into any liability. The total enterprise is valued at $500 million.
Will flying rights of Sahara get transferred to Jet and even the international rights
All this is subject to regulatory approvals.
What are the assets acquired from Sahara?
We all know there is infrastructural problem. We are getting the parking slot and whatever facilities they have in different airports in the country. All this will again be subject to regulatory approvals. Once we get this, later we will take pilots, some of the technical people and the cabin crew. In this business, besides the aircraft, one needs infrastructure facilities, which one cannot do without. We will get that as well as some man-power from them.
Will the deal enhance shareholder value?
This has been done after a careful study. It is important to give maximum to the shareholders. This deal will give us economy of scale because today any business is on very small margins so our revenues will improve and overall profitability will improve and so naturally shareholders will benefit.
Q: But Sahara has been bleeding for some time now?
I am not commenting on that, but this whole deal has been looked at carefully from a business point of view without being emotional. We are quite familiar with what happens in the rest of the world. Our experts and aviation advisors have looked at how mergers have taken place all over the world. Jet Airways is a very serious company committed to its shareholders.
What are the operational synergies? Will Air Sahara become a low cost arm of Jet Airways?
We are not planning to make it low cost airlines. In India there is nothing like low cost airlines. All the airlines are paying for the same charges at the airport, navigation, landing, etc
In terms of route rationalisations, will you do a recount?
For us, shareholders and consumers are two important people. We will look into network etc so that we can provide services to more cities in India. Indian economy is growing so if the network is better then passengers travelling within India or abroad can depend on airline. We will continue to improve our standard of services.
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On flights to US, is their any problem?
We have no problem with the US government. They had written to the Ministry of Civil Aviation. You can check this with the ministry. It has sent positive response that we have been designated. Hence, there is no problem but I think the reply has to go to external affairs, which I am sure will go. As far as Jet is concerned we have all the security clearances. So we never had a problem with the US problem, we don’t have and I am sure we will never have.
What is your market share?
Jet Airways had a 46 per cent market share. Our market shares went down because of the number of carriers that came in, at the same time, we lost a few of our pilots. Due to safety, we did not want to push anyone, who has less experience, so we cut our capacity to about 20- 22 per cent last month. Now, we have a lot of pilots from overseas, so our business will be normal. So, the market shares, which went down to 35 per cent, with Sahara, it will soon go to 40- 41 per cent of a bigger market.
Will you need to acquire any more aircrafts after this?
We are already going ahead with our business plans.
Is there any difference in the pricing strategy?
Jet Airways has never got into any fare war. We will always look at and run our company in a profitable manner.
What about Interline flights ?
We are not seeing any dip and this is nothing new. Worldwide people do joint purchases; joint pooling in technical spare parts, so that, one can cut your costs. We are definitely talking about how we can pool with them. There are certain airports that they are operating and we are not. We could complement each other, because it is going to be very good for the consumer. Interline is a normal practice worldwide and we will welcome any of our friends, be it Kingfisher, Spicejet, anyone.
They are running very good companies and I want everybody to succeed, I want the industry to be healthy and I would love it if we cooperate with each other, which will help the consumer and the industry to remain healthy. Worldwide the airline business is not healthy. I want to show it to the world that Indians can maintain a healthy industry and can be global players.
Will the international flying rights also get transferred?
All that is subject to government approval. We will be applying to the authorities. The total takeover is 100% and we will are valuing it at USD 500 million. We will also be taking 100% equity of Sahara Airlines.
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What is the status of excise government approvals ?
Government has opened excise policy, which I have always welcomed and I still welcome it. It is a very good policy. It is a merger, consolidation happens in any business in the world. Banks are merging worldwide. Airlines are merging. A number of industries are merging. Why should there be a problem.
How are you going to raise funds for this?
We have enough cash flows. We have done an IPO, so we have enough money.
Are you going to absorb the entire staff?
No we are not absorbing the entire staff. We will be taking pilots, there is a shortage of pilots which will help us. We will be taking technical, engineering, mechanical staff, again there is a shortage of technical people. We will be taking some cabin crew depending on their merits. Everything will be done on the basis of merit. There is nothing more than safety. Safety will be of prime.
What is the balance sheet size of both the entities?
Our own research work is going on and when we finish it, only then will we be able to reveal this.
What about acquisition in this industry?
This acquisition will be very good for the industry, for our shareholders, consumers, for the financial institution. Overall it will prove that in India things can be done better than anywhere else in the world.
What was the sale approximately for Sahara last year?
I cannot give out the numbers. I believe it was in the range of Rs 1500-1800 crore. We have appointed our auditors, and have done our due-diligence very carefully. We have taken into consideration airline business both up and down. We have looked at what will happen in the next few years carefully, but looking at the Indian scenario and what could happen in the US economy, nobody knows what will happen.
What will happen to agreements that Air Sahara has with other airlines within the country and outside. Would you continue with those agreements?
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We will be putting our management team to look at what is good for Jet Airways, what is good for the consumers, we will see which agreements are good and which agreement need to change.
Do those agreements come to you automatically?
There is nothing called as an agreement, in any merger anywhere in the world. It is not the first time. We will be looking at which agreement we should have. There are a number of agreements we already have, it is just being duplicated. We are dealing with many airlines in the world so it maybe getting duplicated. That will improve the profitability because sometimes airlines also have some agreements with many carriers.
Is this an ambitious plan?
First of all, it is not an ambitious plan and we have been looking at this for long. We have a business plan, we have our own fleet plan and we will continue on that as we have done in the past. We have ordered 10-737, 800, 900 that will be delivered. They will be on track. We will be leasing two 330 for our international flights, the delivery will start next year and another 10-330 and 10-777 will be taken next year.
Will you be looking at market momentum?
We are looking at it, our bankers are studying it. Even before the acquisition we were planning to raise additional capital to fund the expansion that we just mentioned. We made a commitment that we will try and maintain strength in our balance sheet. That means the equity position must be looked after adequately. So we do not overlook the balance sheet.
Jet is definitely better among mergers, airlines, aircrafts, staff, the food is better. What are you going to do with Sahara, will you update it?
Fortunately they operate the same fleet which is the 737, 700, 800, 400, so there is nothing different. We will bring those aircrafts to our standards. Our technical team is capable of doing that so it is not a problem. We will see how we use them and which routes we can rationalise and that is why that will be a part of our mark in the plan.
When is the regulatory approval and by when will you start integrating this process into yours?
We are hoping that the regulatory approvals will come soon, because there is no confusion there. So I do not see any problem. Once the approval comes we will start the operation.
What happens to the Indian cricket tickets?
We have nothing to do with cricket. That will be taken by their other companies, not passed on to Jet Airways.
What do you think this means to the aviation sector?
I think it will help in better co-operation between airlines. I see more relationships coming, more interline relations improving, more discipline coming which will help the industry become more healthy.
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