Wednesday, January 11, 2006

Jet Airways to Buy out Sahara

In one of the most far reaching acquisition in the new year, Jet Airways is planning to buy out Air Sahara in a deal which may be worth 560 million dollars. This deal if it happens will mark the beginning of M&A activity in the area of Airlines which has not seen this activity for quite some time after the usherance of number of small players with their own market strategies like Air Deccan, GoAir etc.

If this deal gets sealed then it would make Jet Airways country's number 1 domestic airline way ahead of Indian (formerly, Indian Airlines) grabbing close to 50 % market share. In all terms whether it is the fleet or the turnover or the valuation, Jet Airways will become number one in the Indian domestic airline market.

Earlier before this news, Kingfisher was in the race of buying out Sahara but later on Vijay Mallaya backed out of the race. As far as Jet is concerned the senior management has denied of any such sort of negotiations happening. Its only when it was reported in the news channel CNN IBN that the news spread.

It is expected that the merged entity would have more than half the domestic market and a fleet of more than 90 aircraft, with revenue of 70 billion rupees ($1.6 billion) and a market value of 115 billion rupees which makes it way ahead of its competitor Indian which has very recently done a brand makeover exercise.

It all began when in September, Air Sahara had announced that it is looking for a partnership to fuel its growth and appointed Ernst and Young as the strategic advisor for this activity. E&Y valued Air Sahara at $ 750 million to $ 1 billion.

Air Sahara, which began operations just months after Jet in 1993, is part of a $12-billion group owned by flamboyant tycoon Subroto Roy, with interests spanning finance, housing, power and media.

India's domestic air travel market is forecast to grow more than 20 percent a year over the next five years, boosted by rising incomes and lower fares. An estimated 19 million domestic passengers travelled by air in the year to March 2005.

From the Jet point of view this deal is very strategic as it allows the Jet to kill the competition very easily. If it acquires Air Sahara then it gets way ahead of the next closest competitor which is Indian. Also Air Sahara has a strong presence in the North which Jet can take advantage of and grab a greater market share.

With the emergence of no frills airlines with a rush like Air Deccan, GoAir, Spice Jet it has become very important for the established brands like Jet to grow at a faster pace either organically or inorganically to ensure that it stays at the top position in the market.


Kunal said...

Need to get your facts right - the value reportedly being paid Jet is about USD560 million and it'll have close to 46% market share and not 60%... cheers! but i think this is all a fluke though!

Yashasvi Arun said...

well the valuation of 760 to 1000 million dolllars was done by E&Y. The market share figure is based on current market share of both sahara and jet so there is not much of discrepancy. The deal will close soon

Kunal said...

Latest figures about market share - Jet approximately 34%, Air Sahara 12% = gives us a grand total of 46%!
Yes E&Y made a valuation of about USD750m to USD1b, but Jet has (as per media reports) only made a bid of about USD560m

Yashasvi Arun said...

Point well taken. Thanks for the correction.