Group 2 – IT Management
Jet Airways – A Brief
• Jet Airways is one of India's premium domestic airlines and
arguably the most successful.
• Chairman Naresh Goyal
• Was set up in 1993.
• By 2003, Jet became the market leader with 44% of the
market share
• Went public in the year 2005
• With the introduction of low cost carrier, Jet facing stiff
competition and steadily losing its market share.
• In 2006, Jet Airways in the biggest acquisition in the Indian
aviation history bought out rival Air Sahara.
• Acquisition makes India largest carrier.
Air Sahara – A Brief
• Was founded in the year 1991 and began operations in 1993
• Was initially known as Sahara Airlines and then rebranded
as Air Sahara in 2000
• Started international operations in the year 2004
• Has a fleet size of 31 aircrafts and 4 helicopters
• Had 11% market share in the year 2006
• Taken over by Jet airways in the year 2006.
Objectives
For Jet:
Consolidate its position in the Indian market
To improve the market share
Improvement in figures (top line and bottom
line)
Dominance of parking bays, airport
infrastructure
Effect cost savings in operational activities
Objectives
For Sahara:
Exit the loss making airline business
To repay the debt
Sequence of Events
Jan 2006 – Jet Sahara deal for Rs. 2200 Cr.
June 2006 - Jet-Sahara deal falls through
June 2006 – Sahara moves to Lucknow High Court.
Escrow account frozen
August 2006 - Supreme Court directs Bombay
High Court to hear Jet-Sahara case.
September 2006 - Jet says lack of Government
approvals led to failure of the deal.
April 2007 - Jet starts fresh talks to buy out
Sahara Airlines.
April 2007 - Jet to buy Sahara for 1450 cr.
BATNA for Air Sahara
For Sahara:
Getting on board a strategic investor
Bringing in a private equity
Raising an IPO to repay debts
Tradables
Price Negotiated from Rs. 2200 Cr to Rs. 1450 Cr after
removing creditor liabilities
Creditor Liabilities Initial price of Rs. 2200 Cr included Rs. 325 Cr
earmarked as Liabilities. After negotiations it was
decided that the liabilities will be paid by Sahara group.
Branding Sahara wanted to retain the brand (International
Business Times - 16th April 2007).
After the negotiations it was decided that the brand
would be changed to JetLite.
Payment Terms All cash deal
Upfront Payment of Rs. 400 Cr
Payment of Rs. 550 Cr over four years*
* - Source: Times of India dated 12 April 2007
Tradables....
Assets When the price was re-negotiated and was brought
down, Sahara group insisted on keeping the assets
such as helicopters worth $ 75Mn and Jet agreed.
Future of Employees Air Sahara staff will not lose their job and will be
absorbed by Jet Airways
Cricket Sponsorship Rs. 300 Cr. liability of Indian Cricket Team sponsorship
for 4 years will not be taken over by Jet.
Management Control Till government approval, Jet to appoint 4 members,
including Chairman, in Air Sahara board
Structural Barriers
Pricing related issues:
Jet initially agreed for Rs 2200 cr.
Jet backed out after critics pointed Sahara was
over valued.
After second round of negotiation both sides
agreed at a price of Rs 1450 cr.
Sahara insisted on deal getting signed before a
tribunal and ratified by Delhi High court.
Sponsorship of Indian Cricket Team
Strategic Barriers
Analysts pointing out that Sahara was
overvalued. Jet ultimately paid Rs. 1450 Cr
after second round of negotiations.
Psychological Barriers
Both Jet chairman Naresh Goyal and Sahara
chief Subrata Roy are astute businessmen
Both began their careers in humble
circumstances
More than the money the pride was at stake
Goyal called the Sahara Group chief Subrata
Roy saying, "Namaste Bhaisahab, kaise hain
aap? (Greetings Honorable Sir. How are you
keeping these days?) Why don't we forget
the past and make a fresh start?" This
reportedly broke the ice between them
Psychological Barriers….
Sahara
Cooperates Defects
Jet Cooperat Both get the deal Jet: Costly Arbitration
es benefits. Win Win Process.
situation for both Sahara: Could be fined
by the court
Defects Jet: Loss of Escrow Both: Costly Arbitration
Money. Process. Do not get
Sahara: Costly benefits of the deal
Arbitration Process
Institutional Barriers
Delay by Ministry of Civil Aviation in giving
the requisite security clearances was also
pointed out as one of the reasons for initial
failure.
Final Deal – As Signed
Jet to buy out rival air carrier Air Sahara for
Rs. 1,450 crore (approx. $300 million)
All Cash deal wherein Rs. 400 Cr will be paid
upfront by Jet and Rs. 550 Cr will be paid over a
period of 4 years.
Jet will not take on the liabilities of Air Sahara
Jet may have to re-apply for regulatory
clearance of Sahara's international flying rights.
Jet will not take on the Rs. 300 Cr sponsorship of
the Indian cricket team.
Jet may have to re-apply for regulatory
clearance of Sahara's international flying rights.
