Jet sahara merger

1. 1. Sidh Vikash Kumar a r th Vai tSan sh Ravi Dixi c hi Mal ho tra L uthra T imsi Prashant
Kumar
2. 2. Important Dates:-23/01/2006: Jet-Sahara deal: It is all deal started with Rs.
2300cr13/05/2006: MRTPC tells DG to submit report on Jet-Saharadeal13/04/2007: Air
Sahara in Jet Air fold for Rs 1,450 cr14/04/2007: Safe landing in the end17/04/2007:
Air Sahara renamed Jetlite21/04/2007: Jet Airways completes Sahara acquisition
3. 3. AcuirerTarget
4. 4. d Jet Airways had valued Air Sahara at about 500 million dollars (Rs2300crores)
initially. However, subsequent negotiations between Jet Airways owner, Mr. Naresh
Goyal and the Air Sahara team settled the deal at 450 million dollars (Rs2100crores). The
initial valuation of Air-Sahara seemed to be very high, given that the carrier was sitting
on Rs 96 lakhs of loss in the just concluded financial year. This feeling among the
industry analysts were reflected when the Jet Airways share experienced a sharp decline
with the announcement of the deal. Finally deal was closed on 1450 crore.
5. 5. MOTIVES FOR ACQUISITION The merger of Jet and Sahara gave Jet Airways
access to the entire leased fleet of 27 aircrafts of Air Sahara along with its infrastructure
and logistics. It also gave Jet Airways presence in those areas in India where they were
not there but Air Sahara was. Air Sahara proved to be complementary to Jet even in the
international arena. While Jet was operating on long haul routes such as US and Europe,
Air sahara operated to neighboring countries such as Sri Lanka, Nepal and Thailand. Jet
had about 62 aircrafts and operated 320 flights to 44 domestic destinations and 6 foreign
destinations at the time of the deal. One major gain for Jet in the deal was that it could
gain access to Saharas parking slots in Londons Heathrow airport as well as in Delhi
and Mumbai. Another factor was that there was a huge shortage of airline pilots. Hence, it
could utilize Air Saharas pilots. The maintenance facilities of the smaller carrier would
also be available within the country.
6. 6. MOTIVES FOR ACQUISITION CONT..Since Air Sahara had leased all of its 27
aircrafts, so there wasnot much gain in terms of tangible assets especially since AirSahara
was not transferring its real estate and helicopters.However when the deal was announced
in January 2006, theplan was to take over all of Air Saharas assets for $545 million.Jet
Airways was also looking at capturing more market sharepost the deal. It used to have a
40 percent market share whichfell down to 27 percent at the time of the deal. The major
reasonwas Jets intention of becoming the king of Indian skies bybecoming the number 1
private airlines in the industry
7. 7. i Strategic Fit it was a vertical acquisition as, Air Sahara as on 2006 hada market
foothold of 12%, which increases Jets marketshare to 45%. Air Sahara had a vast parking
bays atimportant metros, which can be used by Jet to reducecongestion time and reduce

fuel burning up to a largeextent. Air Sahara was mostly servicing the domesticmarket (24
domestic and 4 international) and thisincreases the domestic share of Jet. Air Sahara had
afleet strength of 26 which drastically increase Jets Fleetstrength, without purchasing
any new airplanes.
8. 8. i Operational FitScreening Target Target Company: Air Sahara Operational FitThe load
factor of Jet in its international flights was 73% and indomestic flights was 72%. Air
Sahara had a load factor of 72%on domestic route and 65% in international flights. So,
usingthe expertise of Jet, Air Sahara could gain. Sahara had 4international destination, Jet
Airways also had internationalflights to those destinations from the same source.
So,efficiency and monopoly could be increased. Air Sahara hadan identical fleet as the
Jets consisting mostly of B737.Maintenance in case of was easy and effective. some
Analystsestimate that a cost saving of Rs. 150 crore -200 crore isachievable due to
acquiring of parking bays.
9. 9. DEAL Jet Airways announced its first takeover attempt on January 19, 2006, offering
2300 crores rupees in cash for the airline. Market reaction to the deal was mixed, with
many analysts suggesting that Jet Airways was paying too much for Air Sahara. The
Indian Civil Aviation Ministry gave approval in principle, but the deal was eventually
called off over disagreements over price and the appointment of Jet chairman Naresh
Goyal to the Air Sahara board. Following the failure of the deal, the companies filed
lawsuits seeking damages from each other.
10. 10. i Target ValuationThe entire business of Air Sahara was valued at Rs. 2300 byJet
Airways. whereas the valuations by E&Y for Air Sahara was done atRs 3382 croresThe
valuation has been made on the comparable value withrespect to the valuations of Jet
Airways. Only the assets will beacquired, liabilities to be borne by Air Sahara itself
Nikhil Gargfrom Edelweiss Capital said that if Jet Airways pays Rs. 2300crore to Air
Sahara, then Jet would be overpaying by 35%, asbecause the valuations of Jet dipped by
35% within months ofdeal talks.
11. 11. i Target Valuation(Revised)Valuations made are comparable with the Jets
marketvaluation. After the talk of deal Jets valuation slipped byaround 35%, so the new
valuation of Air Sahara was done at35% lower valuation of Rs. 2300 crore i.e. Rs. 1450
croreRs. 900 crore were paid immidietly but . The balance of INR550 crores were
payable in four interest free annual equalinstallments .The entire deal was done through
debt, majority from IDFC,the companys long standing banker.
12. 12. i Synergycost saving of Rs. 150 crore -200 crore was achieved due toacquiring of
parking baysThe ticketing costs were reduced for JetLite by moving to
webplatformIncreased customer based helped them reduce cost ofoperation50%
Reduction of staff due to synergies
13. 13. HUMAN RESOURCES RELATED ISSUES In case of Staffs integration, Jet
Airways was quick to lead the Air Sahara employees through a 90 day period training.
Lufthansa Technik team provided support Deal to absorb any excess employee back to

Sahara Group To avoid Cultural Clashes, Air Sahara was converted to Jet Lite , having a
different philosophy from its parent, so that a low cost structure can be developed.
14. 14. HUMAN RESOURCES RELATED ISSUES (CONT) Reduction of staffs due to
synergies was made close to 50% reduction in headcount for the entire group. Jet was
faced with immense criticism and opposition by various organizations and political
parties Jets chairman, Naresh Goyal reinstated the employees a day later saying he was
not aware of these sackings. So, the HR integration was not smooth enough.
15. 15. POST MERGER INTEGRATION Jet Airways and Air Sahara had an identical fleet
consisting of B737. So, after the merger the Air Sahara planes were immediately brought
into service. Only 20 of the 26 of Sahara are actually flying. So, Jet infused another Rs.
200 crore for refurbishing the entire fleet Bulky insurance policies were removed to short
term cost efficient policies. Released premises and office spaces not required
16. 16. POST MERGER INTEGRATION (CONT) 2 CRJs(Canadair regional jet) which
has 70 to 100 seater were removed and ATRs(Avione de transport regional)- Airbus were
leased to reduce maintenance costs of a different aircraft. The ticketing costs were
reduced for Jet Lite by moving to web platform Food and Cabin Amenities were reduced
Loss making flights discontinued Business class services withdrawn.
17. 17. The Joy of Flying.