JET SAHARA DELAYS
Jet set for (F)Air Sahara, but wedding bells will have to wait
Jet Airways advances Rs 500 crore to Air Sahara, twiddles thumbs for
governmental clearances
BY A CORRESPONDENT
March 28, 2006
They thought March 24 would be the day, but the Jet-Sahara union will
have to wait another three months before the acquisition can be
formally completed. Jet Airways Chairman Naresh Goyal and Sahara chief
Subrata Roy on Friday issued a joint statement agreeing to extend the
deadline stipulated in the acquisition agreement by 90 days. This is
expected to give Jet Airways sufficient time to get the required
regulatory Government approvals, and also resolve contentious issues,
such as the transfer of Sahara's parking slots and air traffic rights.
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TALE OF
ANOTHER DIFFICULT MARRIAGE |
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In 2005, German airline Lufthansa was in a similar situation,
poised to acquire Swiss International Airlines, which was in
financial difficulties at the time. EU approval was conditional on
the parties surrendering slots at the Zurich and Frankfurt
airports, in addition to making several other concessions. The
merger allowed Lufthansa to further consolidate its position as a
leading international carrier, and allowed the company to offer
enhanced services and benefits.
The Lufthansa acquisition had raised concerns with the competition
regarding monopolistic practices. EU had been careful to spell out
that the combined carrier should not lead to higher prices or
reduce choice of carrier, or prevent other airlines from offering
new services in competition with the merged airlines. |
Jet Airways Chairman Naresh Goyal said, "I'm very sure that the
government of India will look at it because they are very, very
concerned that the industry must be healthy, must remain healthy and
it must grow."
He also said that Jet Airways had already paid Sahara Rs 100 crore to
meet its working capital needs. Jet Airways would also pay Rs 500
crore in the next few days as an advance payment. If the agreement
fails to get government approval and the deal falls through, then the
Rs 500 crore would be returned to Jet Airways without interest.
The agreement has faced hurdles in the form of the Director General
(Investigations and Registrations) laying down conditions limiting the
scope of the deal, as the combined entity would corner a large
proportion of scarce infrastructure, such as parking bays besides
flying rights. In addition, the Monopolies and Restrictive Trade
Practices Commission (MRTPC) had expressed concerns over the legality
of the deal by issuing notices to both companies requesting details of
the
deal.
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Earlier, in one of the biggest aviation deals India has seen, Jet
Airways had announced in January that it would be buying smaller rival
airline Air Sahara for $500 million in cash. The combined airline is
expected to command almost 50 per cent of the domestic market, which
is expected to have a growth rate of 20 per cent a year for the next
five years.
With a number of new airlines being launched, consolidation is being
seen as inevitable, with cut-rate pricing putting pressure on all
carriers. The Jet-Sahara combine is likely to make it extremely
competitive, and has raised concerns among other domestic airlines
such as state-owned Indian, Paramount and United Breweries-backed
Kingfisher Airlines, as well as discount carriers SpiceJet, Air Deccan
and GoAir.
It is believed that Jet Airways was willing to fork out $500 million
for the loss-making Air Sahara, lured by its overseas flying rights
and control over airport slots. Air Sahara operates with leased
planes, which is no attraction to an acquirer. If Air Sahara has to
change hands minus its airport infrastructure and flying rights, the
proposal may not look as rosy to to Jet Airways as it earlier was.
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