As the much talked Jet-Sahara merger deal crash lands, the battle has now shifted from boardroom to courtroom.
On
January 18, 2006, Air Sahara signed a merger deal to sell the airline with Jet
Airways. The Rs. 2,300 cr ($500 mn) deal made big news and was a landmark in the
history of Indian civil aviation. The deal was about creating India's biggest
domestic carrier with an 80-aircraft fleet and controlling half of the booming
market. On paper, the deal looked good for Jet Airways, which would have created
the only private Indian carrier to fly international routes with no competition
for the next three years.
The
deal was very timely as the industry is on an expansion mode with new infrastructure
being built and increasing competition where profitability is a concern for every
player. Moreover, the low-cost airlines with huge capacity addition compounded
the competition. Currently, the Indian aviation industry is impeded by overcrowded
airports, long drawn-out air traffic controls, low fares and shortage of pilots
and engineers. Despite these factors, the industry recorded a 25% growth in air
passenger traffic in the last year. The industry had emerged as big buyers in
the last year's Paris Air Show, placing orders worth around $12 bn.
Against
this backdrop, Jet Airways paid advance money and deposited a security amount
in an escrow account with ICICI Bank. However, just before the deal could be finalized
Jet backed out. After this, Jet tried to bargain for a better deal with 20-25%
reduction on the offer deal and these developments met with a firm refusal from
Sahara. Though Sahara extended the "deadline" by another two weeks,
Jet had seen no value in such proposal and thus the deal had fallen. Sources reveal
that Jet's Chairman, Naresh Goyal had changed his approach as he wants to revalue
Air Sahara. It may have been the failure of Jet to get the right valuation for
the proposed Foreign Currency Convertible Bond (FCCB) issue. Jet Airways said,
"There is nothing more to the actions of the parties (of not seeking extension
of share purchase agreement) beyond commercial considerations." Beyond this,
the Jet Airways is of the view that Air Sahara has not executed various agreements
finalized as part of the deal. These include transfer of infrastructure facilities
like parking bays, arrival and departure slots. Followed by this, the legal battle
against the deal added new twist to the tragedy. |
