InternatIonal AerospAce MArcH-AprIL 2007

AIrLInes

Jet Set for a new lookthe year 2007 has been uniquely different for the aviation industry in India. Considered one of the biggest mergers of its time, the state owned carrier air India and Indian airlines merged to make largest airline in asia. In april 2007 the takeover of air Sahara by Jet created the largest private airline in the country. the two mergers — aI-Ia and Jet-Sahara — are set to change the contours of the industry in the coming years, with Jet already aiming to secure its position among the top five airlines of the world. International Aerospace look into the Jet air-Sahara deal and future plans of Jet .

After months of legal battle, Jet Airways finally succeeded in tak-ing Air Sahara at an enterprise

value of Rs.1,450 crores. Now, Naresh Goyal chairman of Jet Airways wants to position the airline “among the best five carriers of the world and as a first pre-ferred choice in coming five years time”.

Multi million dollar investment has

been planned as a part of comprehensive plans to prepare for the airlines’ major thrust into International market and to fuel jet growth. From a new corporate identity and brand mark, the company is involved into comprehensive expansion plans that include launching new routes, new seats, new in-flight service and de-signer staff uniforms.

Deliveries of the first of the 20 wide body aircraft including ten Boeing B777-300ER and ten Airbus A330-220 aircraft valued at USD 2.1 billion will commence soon (the airline received the first delivery of A330-320 on April 27, this year). The new Boeing will be configured into three classes. First Class, Premier and Economy seats and will initially operate on the

Jet Airways took delivery of its first Airbus A330-200 aircraft purchased directly from Airbus, at a ceremony on April 27th, 2007 held at the Toulouse delivery centre. The aircraft an A330-200 was formally handed over to Naresh Goyal, Chairman Jet Airways. Jet Airways

ordered a total of 10 Airbus A330-200s in October 2005.The airline already operates the A340s and the A330s between India and the United Kingdom and plans to use the A330s on a mix of regional and long-haul international flights. The aircraft was delivered in Jet Airways’ new paint scheme that features a new design, colours and typeface. The aircraft will enter service on May 5, commemorating

the airline’s 14th anniversary of operations.

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InternatIonal AerospAce MArcH-AprIL 2007

AIrLInes

Mumbai-London route, followed by daily services to New York via Brussels in early August as further deliveries of B777 are made. Daily services to San Francisco via Shanghai are also planned in winter 2007.

According to Goyal, “Jet Airways believes in continuously redefining and enhancing the customer experience. This multi million dollar investment in its international product reflects the same. The airways vision is to emerge amongst the top five carriers globally in the next few years.”

As it looks to win traffic from rivals British Airways and Virgin Atlantic on its route into London -the first airline `suite’ in the sky from Jet offers customers the ultimate privacy and luxury. Each of the eight First Class suites on the Boeing 777 aircraft will feature the world’s longest First class bed at 83 inches, massive 23 inch flat screen monitors and designed storage areas that include a personal

hanging wardrobe, dual credenza and under ottoman stowage.

The announcements of the com-prehensive plans were made with pomp. From fashion show (of the new staff uniforms), to roping in of Bollywood

stars including writers, directors and ac-tors and business tycoons were all part of the press conference, not to mention the static display of all the three classes -premier, first and economy class.

2007 could bring drastic changes in the Indian aviation scenario, especially on airlines operation style. The year has already marked two biggest aviation deals in the Indian history. The Jet-Sahara deal which is the first such between two private players and the merger between national carriers Air India and Indian that

took place in the beginning of 2007.But coming back to the Jet Air

Sahara deal, Goyal reiterated that he has managed to seal the deal at a 40 per cent lower value in comparison to the share purchase agreement on January 18, 2006. “ We were originally ready to pay Rs. 2000 crores. Now, the deal is closed at Rs.1450 crores and if you take the net present term it comes to approximately Rs.1250 crores that is approximately 40 per cent lower. We have seen how the stock mar-ket has behaved. We paid the right price at that time. Now the overall scenario has changed and it is the right price now. The deal is good for both sides. We are looking at a long term future that this will make sense and it is a good win-win for both the parties.”

But the major question arouse in everyone’s mind: What made Jet come back to the negotiation table after the disputes arouse between the two parties

The Jet-Air Sahara Deal: Will it work or will it not! Jet Airways Chairman Naresh Goyal with his wife walk on the ramp at the press meet called after sealing the deal.

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“The airways vision is to emerge amongst the top five carriers globally

in the next few years.”

InternatIonal AerospAce MArcH-AprIL 2007

AIrLInes

taking the matter to the court in 2006? And this is what the counsel for Jet Airways Haresh Salve replied to the media persons, “ a bad settlement is better than a good verdict”.

The deal fell apart on June 21, 2006 (at this time Jet Airways had paid an ad-vance of Rs.500 crores ), both the parties moved courts in Lucknow and Mum-bai seeking to restrain each other from accessing the escrow account opened to complete the transaction. Jet later ap-proached the Supreme Court seeking to transfer litigations related to the dispute pending before various courts to Bombay High Court.The High Court subsequently referred the matter to the arbitration panel, which took up the case for final hearing on April 9.

However, after clinching on the dis-puted deal, Goyal prefers to play safe and move ahead with a slow pace with an aim to create value for his shareholders. “We will continue to provide the best standards in domestic market. Domestic will always be our bread and butter and will be our key in the overall strategy of growth. We do not want to grow the way market is grow-ing at 40-45 per cent; we want to grow very steadily. Our domestic growth will be around 15 per cent. We are not interested in market share. We are interested in the bottom line: Profitability and Return.”

While, on the initial deal, the idea was acquisition –merger, with the new deal, both the companies will now run independently. “That time idea was acquisition- merger, now we will have two model. Both the companies will make money and the new model will grow certain markets.”

Air Sahara has been converted into a value carrier under the new name Jetlite. Utilizing the network of both the airlines, Jetlite will work on a model between the so-called LCC and Full cost carrier. “Through Jetlite we are hoping to bring some light in the aviation which is dark today. It also means it will be light on your pocket” Goyal said with a pun.

However, the airline has “no plans yet to join any alliance”. The company is going to raise new capital for expansion. The company is “also in negotiation with Boeing for better prices of the order placed by Air Sahara.”

A quick look at the deal• The new Deal : Jet will acquire of

100% of Air Sahara for Rs.1,450 crore

• So far the Company has paid Rs. 900 crore (Rs.500 crore paid in March 2006, Rs. 400 crore on April 20, 2007)

• Balance Rs.550 crore will be paid in four interest free annual equal install-ments from March 2008 stretching till 2011

• Jet managed to get the deal at 40% discount incomparision to its earlier price offer

• Jet had offered Rs.2,000 crore in January 2006

• Deal does not include Four helicop-ters and immovable properties of Sahara group

• Along with a fleet of 24 Boeing and 3 CRJs, 3,700 employees of Air Sahara will get transferred to Jet.

• Employees not wanting to absorb by Jet will be taken care by the Sahara group

• `The price Jet paid is much the same they quoted last year’ –Air Sahara

• The deal gives the airline a combined domestic market share of around 35 %.

• An arbitration panel approved the revised offer.

• Sahara’s flying rights, parking slots, hubs, fleet and airport infrastructure will be transferred to Jet

• Jet would also get to use the 10 Boe-ing 737 aircraft for which Sahara had placed orders.

• The Air Sahara brand would be retained by the Sahara group

• Industry players and analysts feel the Jet-Sahara merger may mark the beginning of the end of cheap fares

• Consolidation may help existing play-ers to improve profits

• The takeover of Air Sahara by Jet will create the largest private airline in the country, which will have a com-bined fleet of size of over 80 aircraft

• The deal was signed by Saroj Dutta of Jet Airways and Pallam Agarwal, who represented Air Sahara.

• Jet can use the Air Sahara brand for a maximum of six months, after which the rights will revert to Sahara Group

• Jet Airways will convert Air Sahara into a value carrier, named Jetlite. The airline model, which is posi-tioned between a full service carrier and a low-cost carrier.

• Jet Airways would be positioned as a premium airline with strong domestic and international operations while its subsidiary will take care of linking more cities.

• Jetlite will act as connecting link to Jet Airways domestic and interna-tional flights. Currently, Air-India and Indian Airlines are following this model and it will be further strength-ened following the merger.

• Jet Airways currently operates a fleet of 62 aircraft with over 340 daily flights while Air Sahara is operating 134 flights per day with 27 aircraft. Jet is offering 41,000 seats a day while Air Sahara offers 16,500 seats per day.

• It doesn’t happen frequently that a deal that has fallen apart gets resur-rected.

• Lack of government approvals as a reason for the fallout of the deal earlier.

Sahara JetFleet 27 62Destinations 29 44Daily Flights 134 330Pilots 232 780Total Staff 3700 19600Market Share 8.5% 25%

— MASOOMA JARIWALA

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