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This is to certify that the Project Report entitled “A study of the process of change management in the merger of Jet and Sahara airlines” Submitted by Saumya Agarwal Roll No. 08-III-847 PGDM in part fulfillment of the requirements for the award of the PGDM. This Report is the result of his own work and to the best of my knowledge no part of it has earlier comprised any other Report, monograph , dissertation or book. This Project was carried out under my overall guidance.
Date : 30th January, 2012
(Prof. Manwar Singh)
I wish to express my sincere thanks to my project guides Prof. Manwar Singh, Institute of Marketing and Management, New Delhi for his immense help in planning and executing the project. The confidence and directions with which Prof. Singh guided the work requires no elaboration. Their valuable suggestions at crucial junctures during the entire course of work are greatly acknowledged. I would also like to thank my family and friends for their support during my entire project work. Last but not the least I would like to thank god for consistently providing me energy of everything in life that I undertake.
Saumya Agarwal Roll No. 08-III-847 PGDM (Batch 2008-10)
SYNOPSIS……..........................................................................................4 CH 1. INTRODUCTION…………………………………………………5 1.1Change Management................................................................................6 1.2 Merger and Acquisition………………………………………………..8 1.3 Aviation Industry………………………………………………………28 CH 2. INTRODUCTION TO JET AND SAHARA AIRLINES……………36 CH3. METHODOLOGY & DATA COLLECTION.......................................47 2.1 Method of Data Collection..........................................................................48. 2.2 Sample of Study...........................................................................................48 2.3 Source of Data.............................................................................................49 2.4 Limitations...................................................................................................49 CH4. DATA ANALYSIS & INTERPRETATION...........................................50 CH 5.CONCLUSION AND RECOMMENDATIONS…………………….....56
CH 6. LIMITATIONS OF STUDY…………….……………………………63 REFERENCES....................................................................................................65
corporate finance deals do the reverse and break up companies through spinoffs.. changes in local leadership.... Not surprisingly. Entrants to emerging markets should approach change with full knowledge of the forces involved in the market dynamics and a clear understanding of the local rules and the local culture in how the local workforce expects to be treated. Every day.. and people... these actions often make the news.. leading an M&A can represent the highlight of a whole career. Nevertheless..... which bring separate companies together to form larger ones. of dollars.. reduction of the workforce. Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world....... it is very upsetting and dislocating.. or even billions.... the acquirer could insist that the target company handles these issues as a pre-requisite to close the deal... Deals can be worth hundreds of millions.BIBLIOGRAPHY……..... including many in emerging markets... And it is no 4 .. In cultures where participative management is common. change is an inevitable consequence of mergers... The epicenter of change is also important. Achieving the optimum value of any merger transaction usually requires some changes in the organizational structure.... When they're not creating big companies from smaller ones. as in the United States.... an acquirer should involve local management in the change process........... success is more likely when top management and mid-level managers jointly identify problems and create change solutions... In other cultures. carve-outs or tracking stocks..... Some change management challenges can be avoided by solving them as early as the stage before the deal is actually finalized. They can dictate the fortunes of the companies involved for years to come.... operations.....67 SYNOPSIS Universally....... reward systems. and hence a proactive management is needed for the change to produce the anticipated benefits..... etc... Bringing in expatriates to manage or lead is likely to create resentment and thereby resistance.. a top-down approach to change is more appropriate. For a CEO....... Change. For example. has its problems..... Wall Street investment bankers arrange M&A transactions..
CHAPTER 1 INTRODUCTION 5 . odds are good that at least one headline will announce some kind of M&A transaction.wonder we hear about so many of these transactions. they happen all the time. Next time you flip open the newspaper’s business section.
Finding an approach that suits you and your situation goes to the heart of being an effective and professional manager in the education sector (HEFCE. processes and culture as shown in figure below. However. whilst recognising each change situation will be unique. 2003). Key considerations for managing change : 6 . there are still a number of common themes that will help ensure that the change process stands the greatest chance of success. Change process Change usually involves three overlapping aspects: people. Often. the emphasis is upon the processes. However. in order to properly embed a change. a manager needs to balance all three of these aspects.CHANGE MANAGEMENT Change Management There are many different types of change and different approaches to managing change.
the following are key areas to think about: What is the nature and the scope of the change? This is the first thing to think about because it influences all your subsequent actions. What needs to be worked on first? What must be put in place as soon as possible? What is the nature of your team/department/other areas impacted by the change? It is crucial to understand how ready your team/department is to engage with the change.As a manager looking to bring about a change. MERGER AND ACQUISITION 7 . get their feedback and get a meaningful plan for the change? What are the priorities for action in your environment? Managing change involves a lot of different activities: once the options have been considered some difficult choices need to be made about what to focus on in your particular area/department. Who is the change going to impact? How are you going to keep people informed. Do a systematic analysis of the factors that will support progress and those that might hinder it. If you manage change in a way that is not congruent with your environment it will at best produce more conflict than necessary and at worse not produce the results that you want. This applies whether this is a change imposed from elsewhere or a change that you are introducing. This enables you to draw up a sensible action plan based on the real environment in which you work.
of dollars. Defining M&A The Main Idea One plus one makes three: this equation is the special alchemy of a merger or an acquisition. This rationale is particularly alluring to companies when times are tough. For a CEO. which bring separate companies together to form larger ones. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. or even billions. they happen all the time. Strong companies will act to buy other companies to create a more competitive. Next time you flip open the newspaper’s business section. these actions often make the news. Wall Street investment bankers arrange M&A transactions. Deals can be worthhundreds of millions.at least. that's the reasoning behind M&A. Two companies together are more valuable than two separate companies .Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. corporate finance deals do the reverse and break up companies through spinoffs. And it is no wonder we hear about so many of these transactions. Not surprisingly. carve-outs or tracking stocks. The companies will come together hoping to gain a greater 8 . Every day. cost efficient company. odds are good that at least one headline will announce some kind of M&A transaction. When they're not creating big companies from smaller ones. They can dictate the fortunes of the companies involved for years to come. leading an M&A can represent the highlight of a whole career.
A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. Distinction between Mergers and Acquisitions Although they are often uttered in the same breath and used as though they were synonymous. the target company ceases to exist." Both companies' stocks are surrendered and new company stock is issued in its place. From a legal point of view. But when the deal is unfriendly . This kind of action is more precisely referred to as a "merger of equals. the buyer "swallows" the business and the buyer's stock continues to be traded. however. Because of these potential benefits. a merger happens when two firms. even if it's technically an acquisition. agree to go forward as a single new company rather than remain separately owned and operated. by describing the deal as a merger. one company will buy another and. therefore. as part of the deal's terms. actual mergers of equals don't happen very often. deal makers and top managers try to make the takeover more palatable. Being bought out often carries negative connotations. In the pure sense of the term. target companies will often agree to be purchased when they know they cannot survive alone. When one company takes over another and clearly established itself as the new owner.that is. when the target company does not want to be purchased .market share or to achieve greater efficiency.it is always regarded as an acquisition. Usually. In practice. the purchase is called an acquisition. 9 . the terms merger and acquisition mean slightly different things. simply allow the acquired firm to proclaim that the action is a merger of equals. often of about the same size.
Market-extension merger .Two companies that are in direct competition and share the same product lines and markets. Vertical merger . reducing taxes payable by the acquiring company. In other words. and the difference between the book value and the purchase price of the assets can depreciate annually. this kind of merger occurs when one company purchases another. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Each has certain implications for the companies involved and for investors: oPurchase Mergers . Think of a cone supplier merging with an ice cream maker. distinguished by the relationship between the two companies that are merging: Horizontal merger .Two companies that s0065ll the same products in different markets. Acquired assets can be written-up to the actual purchase price. 10 . the sale is taxable. Varieties of Mergers From the perspective of business structures. there is a whole host of different mergers.Two companies that have no common business areas. The purchase is made with cash or through the issue of some kind of debt instrument.A customer and company or a supplier and company. employees and shareholders.As the name suggests. There are two types of mergers that are distinguished by how the merger is financed. Here are a few types.Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. the real difference lies in how the purchase is communicated to and received by the target company's board of directors.Two companies selling different but related products in the same market. Conglomeration . Product-extension merger .
Company valuations Company valuations are not only an important basis for justifying and verifying purchase prices. a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.oConsolidation Mergers .With this merger. Process of Merger and Acquisitions Process of merger or acquisition is clearly visible in below diagram. These expert opinions are also crucial when it comes to making a 11 .
streamline cost structures. No matter how the negotiations progress. Support during negotiations Our experts can also support you during the negotiations themselves. These are: Coordinated Strategies . we can support you during the due diligence process. for example. MERGER & ACQUISITION: MOTIVES Why do companies merge or acquirer other companies? There seems to be a number of reasons given to merge/acquire a company. We furthermore support you in international transactions by assessing the value of a foreign company or the business relationships with nonGerman partners.To create a number of new business opportunities and to gain competitive advantage Scale. Preparing negotiations Once negotiations have been taken up. This enables you to resolve even difficult questions under extreme time pressure. We draw up an individual negotiation strategy with you and coordinate the negotiations. 12 . We can provide comprehensive support by preparing the ground for the envisaged negotiations.Purchasing companies in the same space to gain revenues.Tapping into previously inaccessible geographic markets.Acquiring companies with good customer lists that can be sold more products. You can benefit from our sector expertise and our good contacts to the German 'Mittelstand'. to a detailed analysis of the company in question up to assessing the general parameters and framework conditions. Geographic reach. your entrepreneurial strategy and business interests will be paramount throughout. mostly through existing business relationships. and diversify sales channels. These preparations range from contacting potential candidates.cash payment offer to minority shareholders as part of a squeeze-out. many of which involving the market and an extension of the customer base. Customers. Furthermore. it is vital to know where the other party stands and how much room you have for manoeuvre.
Access to new products which in turn can be sold to existing customers or to reach a new customer base.T. acquisitions.Adding key technical capabilities or acquiring a disruptive technology. Employees.Adding needed engineering. yet statistics show that the benefits that look so good on paper often do not materialize. A major McKinsey & Company study found that "61 percent of acquisition programs were failures because the acquisition strategies did not earn a sufficient return (cost of capital) on the funds invested". A global A. Technology.in the form of process knowledge. Shared Know-how . increase market share or take advantage of other synergies. Unfortunately. market knowledge and talent FAILURE OF MERGER & ACQUISITION Mergers and Acquisitions (M&As) have become the dominant mode of growth for organizations seeking a competitive advantage in an increasingly complex and global business economy.Finding new ways of delivering the same products and services.Products. Channels. a KPMG survey found that "83 percent of mergers were unsuccessful in producing any business benefits regards shareholder value. Between 55 and 77 percent of all mergers fail to 13 . Every merger. Similarly.Entering new vertical markets.Kearney study suggests that 58 percent of all mergers. sales. Segments. which are typically to accelerate growth. and other forms of corporate restructuring fail to produce results rather than create value. or other talent quickly. acquisition. cut costs. many mergers and acquisitions fail to meet their objectives. or strategic alliance promises to create value from some kind of synergy.
increase efficiencies or capitalise on synergies. through to postacquisition integration and value extraction. save costs. due diligence. Change Management in Mergers and Acquisitions Introduction M&A transactions are often pursued in order to acquire a larger share of an existing market. eliminate competitors. enter new markets.deliver on the financial promise announced when the merger was initiated. the figure is 90 percent. auditors. contract 14 . by the third quarter. Priorities have to be set and rational decisions under time pressure have to be made for the proper performance. In the first four to eight months that follow the deal. It has. they still face major challenges. lawyers and tax consultants are retained at great costs to manage certain risks through the negotiation. This motivates us to look for other solutions and identify the real causes for the high failure rate. acquire expertise or assets. Each acquisition is a complex process from pre-deal research and planning (selecting the target). recent studies have found that significant percentages of M&As destroy profitability and shareholder value. transfer skills. productivity may be reduced by up to 50 percent. however. M&As are complicated transactions involving many risks for all contracting parties often bringing about fairly rapid large-scale change with far-reaching impact. been found that between 55 % and 70 % of M&As fail to meet their anticipated purpose or they take longer to do so than expected. In fact. Even though most mergers and acquisitions are carefully designed. The failure rate of acquisitions is unacceptable and unnecessary. Nearly two-thirds of companies lose market share in the first quarter after a merger. Merchant bankers. due diligence and integration planning.
During the due diligence phase detailed information is obtained about the parties. systems and practices and that cultural compatibility issues can no longer be ignored. 15 . found that staff productivity dropped by 50% and 47% of people in leadership positions moved on. If the people side of M&As and the integration of different cultures are ignored. However. Also. one of the fundamental motives for M&A is growth. and the risks involved in concluding the transaction are evaluated. Traditionally lawyers and auditors are appointed to conduct the legal and financial due diligence investigation. Growth can be managed through internal extension but firms are conscious that M&As are a faster process to attain their expansion.drafting and implementation phases of the transaction. Both these types of due diligences might touch on the people aspects relevant to the transaction but rarely do they include a culture or climate assessment that evaluates the cultural fit between the organisations involved in the transaction before conclusion of the transaction. A survey of managers and companies involved in more than1000 M&As conducted by Best Practices. including. in order to expand within its own industry. There is. Motivation of mergers and acquisitions There are many motives of mergers and acquisitions and vary from deal to deal. however. ultimately not meeting the anticipated purpose of the transaction. a US–based consultancy. the merging companies could face many difficulties. a growing realisation that the successful outcome of M&A transactions is dependent on wide-scale integration of people and cultures including their processes.
While two companies were at different level from the value chain by merging they can achieve economies of vertical integration: the new organization can therefore take control over raw materials and channels of distribution. 4. Thus. There are other several motives or reasons that engage firms into M&A. Also. It may result in achieving competitive advantages over the competitors regarding the inputs and sales. the largest are the merged companies. in order to emerge into new markets of other nations. the bargain buying can be considered as a merger motive through these different integration processes. 3. it may result to powerful market position and to reduction of the competition. The average cost will decrease due to the growing number of output units produced. 2. Diversification: means growing outside of the actual company’s industry through conglomerates. the better is the position to increase the purchasing opportunities. Generally. M&A are a useful mean to growth worldwide by merging together with an existing partner in these particular geographical markets. the new organization will reach a stronger bargaining position will be reached by reducing the communication and bargaining costs. Indeed. To achieve economies of horizontal integration in order to increase profitability and market share. The most common reasons for companies to launch M&A strategies are the following: 1. To achieve economies of scale: The merged companies will allow producing more cheaply than if the companies were separated. Moreover. 16 .companies will not see the internal growth as the best alternative because competitors may react rapidly and will then take higher market share.
Gains may occur also through the “financial benefit”. 7. 17 . An interesting non-monetary motive is the motive of managers or “Hubris Hypothesis”.5. 10. Their competitive advantage remain in the R&D investment so by merging the budget of both R&D department. “Sellers sometimes require “tax-free status” as a prerequisite of approving a deal”. they can improve their access to the capital markets and to lower cost of capital. Tax motives are also important determinant in the M&A transaction or “tax free exchange” or unused tax shields. 8. Some companies have merged by a belief that the acquiring company can improve the inefficient management of the acquired resources . However. the synergy of value creation is achieved when the profit is higher than the transaction costs. The companies use the loss from one year of the acquired company in order to decrease the profit which is taxable the next year. Research and development are important factors for the future growth of a large number of firms. the merged companies may improve its competitiveness. 9. If two or more small companies are combined. Also. Managers have superimposed their own valuation … and the pride of management allows them to believe that their valuation is superior to that of the market. The Hubris Hypothesis assumes that managers are motivated in seeking for acquiring other companies in order to fulfil their personal motive. the synergies occur when the sum of the partners is more productive and profitable than the individual components taken apart. This is generally due to the growth of revenues and the costs reductions. Indeed. especially in the pharmaceutical companies. 6. To take advantage on the synergy respecting the financial math equation that shows that “2 + 2 = 5” .
· Retrenchment of employees causing panic and a loss in motivation. · Rushed or improper population of new organisational structures. Organisational culture 18 . adds to the levels of uncertainty. · Improper or incomplete alignment of employment terms. · Unhappy customers and the eventual loss of customers. conditions and benefits leading to anger.by increasing their status through the media. Some of the other difficulties include: · Loss of skilled employees other than employees in leadership positions. which could in turn also lead to a loss of productivity and a reduction in revenues. This type of loss inevitably involves loss of business know-how that may be difficult to replace or can only be replaced at great cost. · Increase in costs could result if the proper management of change and the implementation of the M&A transaction are delayed. they strengthen their fame and power which lead to higher salaries and high degree of responsibility. · Build up of resistance to any future change initiatives. ambiguity or confusion that accompanies such transactions. Managing change in the highly complex world of M&As is not easy and research has found that so much as 70% of change initiatives are unsuccessful. The fact that the M&A process can sometimes takes as long as 3 to 5 years to be fully effected. resentment and a drop in motivation.
This creates the risk. It has been found that companies with strong integration plans created above-average value in their industries and effective post- 19 . To acquire true cultural insight.” Participants should feel “secure enough to suspend their need to win arguments. that the merging parties do not discover important differences until after they have committed themselves to the new organisation. clarify everything they say. In this regard it is recognised that such formal cultural assessment is usually not possible because the negotiations leading up to the merger have to be kept secret. This can be done by sending employees into the other organisation for some time or by creating “dialogues between members of the two cultures that allow differing assumptions to surface. It should also be remembered that the usefulness of a formal cultural assessment is limited as assessments done on the merging companies would not indicate whether they are even “using the same meanings for seemingly shared concepts”. The process of creating dialogue can help focus on engaging people and making issues discussable and in this way reducing uncertainty and anxiety and the likelihood for employee resistance to the change. Critical to the success of a cultural change process is a well-designed plan for the management of such change. requires both parties to take part in each other’s cultures.One of the components of complexity of M&As is organisational culture. Dialogue is a form of conversation that allows the participants to relax sufficiently to begin examining the assumptions that lie behind their thought processes. and challenge each other every time they disagree.” Reflective rather than confrontational conversation should be encouraged. Before an M&A transaction is concluded it is important to assess the cultural compatibility of the merging firms. however.
Individuals typically go through four phases during a major organisational change: initial denial.merger management policies were seen to improve the odds of success by as much as 50 percent. during which people can talk about the reasons for the merger and open the dialogue around future changes. The business case for change. and during which management can attend to the psychological dimensions of the change process. Clear and regular communication. Keeping communication channels open will prevent anxiety from getting out of hand and providing clarity about expectations will reduce distrust or conflict. Those stakeholders who will be impacted significantly by the change must have a clear understanding of how and when they will be impacted. Related to the issue of communication is the identification of all stakeholders who may be affected by the change. in every phase of the merger process. Communication channels must allow for effective feedback from stakeholders to 20 . the process of change and timeline must be communicated to all stakeholders so that they may gain an adequate understanding thereof. Just as critical as planning for the management of cultural change is the need for effective communication. however. should address stakeholder resistance and lead to stakeholder buy-in. Employee resistance to change can be a huge barrier to the successful implementation of a merger or acquisition. a natural part of the change process as change involves going from the known to unknown. including the process of creating dialogues. Resistance is. gradual exploration and eventual commitment. Frequent reviews should be conducted during the transition process. resistance.
For this to occur. Mergers are intense relationships that often lead to high turnover as people are “psychologically unprepared for the aftermath of a merger or acquisition”. But. Just as a marriage “demands a lot of attention and commitment of resources” so does the merger of two often divergent cultures. minds cannot be managed.ensure that barriers to and opportunities relating to the change objectives can be identified on an ongoing basis and be addressed. The earlier such people are able to 21 . The role of the integration team leader is also considered vital to the success of the implementation phase of culture integration and integration management should be recognised as a distinct business function rather than an “add-on” job for integration team leaders. the process of culture integration may be significantly hampered. Without collaboration. In the initial phase of a merger. M&As and the resultant changes to the organisational culture often require a collective change of mind. they can only be inspired. Leaders must communicate the vision of the change and its impact as widely and effectively as possible. The integration team leader/s should be involved in any discussion around a potential merger from the outset of the process so that they can provide valuable input into any ‘Go-No-Go Decisions’ taken. In addition. the right style of leadership is essential. teaming up to create cross-company task forces and project teams and articulating the new rules of the game will help problem solving and ensure future collaboration . commitment and patience are essential. Thereafter they have an important role to play in guiding the ongoing change effort and in encouraging employees to stick to the change process until it is an integral part of everybody’s lives.
profitable. the more effective they will be in working through any issues that could negatively impact on future business outcomes. Mergers and acquisitions often necessitate the integration of two or more companies with different values. 22 ." INTRODUCTION Companies today need to be fast growing. long time to realize the actual growth. They may decide to grow incrementally by introducing not only new products but also gain entry into new markets by investing in research and development. future-ready and have a dominant market position. In order to maintain workforce stability. However this mode of growth will have a long gestation period i. if ignored.e. ensuring a smooth transition during the merger/acquisition process. cultures and workforces into one cohesive unit. Without these qualities. Executives have at their disposal a wide range of strategic alternatives for inorganic growth. firms believe that it is virtually impossible to be competitive in today's global economy. efficient. prepared and ready before the business strategy unfolds. The change management process may also focus on minimizing employee attrition and maintaining employee morale during transitional periods. the HR department may craft strategies and outreach communications to manage and explain sweeping organizational changes. adaptable. flexible.participate in the process. Managing Human Resource: A Key Success Factor in Mergers and Acquisition" An organization's people strategy is a necessary precursor to the successful execution of its business strategy – "people must be in place.
Therefore. The Indian IT and ITES companies already have a strong presence in foreign markets. is not only an indication of the maturity reached by Indian Industry but also the extent of their participation in the overall globalization process. Buoyant Indian Economy. which has become the most important strategic element driving business growth and excellence. The increasing engagement of the Indian companies in the world markets. selling and combining of another company.. Mergers and acquisitions are often created to expand a current organization or operation aiming for long term profitability and an increase in market power.Welcome to the world of mergers & acquisitions (M&A). African and European markets to spread their wings and become the global players. and management dealing with the buying. geographical expansion. they are considered as a strategic driver for market dominance. and particularly in the US. however. other sectors are also now growing rapidly. leverage in resource and capability acquisition. Indian companies are now aggressively looking at American. in an era of increasing globalization and competitiveness. competence. HUMAN RESOURCE: KEY FACTOR 23 . They have become the dominant mode of growth for organizations seeking a competitive advantage in an increasingly complex and global business economy. extra cash with Indian corporates. Mergers and acquisitions (M&As) often refer to the aspect of corporate strategy. adjusting to competition. Government policies and newly found dynamism in Indian businessmen have all contributed to this new merger & acquisition trend in India.
1999). Being involved in 24 . People issues have been the most sensitive but often ignored issues in a merger and acquisition. Employees do not participate enough in the integration process of a merger. When a decision is taken to merge or acquire. Organizations must realize that people have the capability to make or break the successful union of the two organizations involved. many studies are pointing to the neglect of human resources issues as the main reason for M&A failures. Human resource professionals are key in pre-merger discussions and the strategic planning phase of mergers and acquisitions early as to allow them assess to the corporate cultures of the two organizations (Anderson. Companies which have failed to recognize the importance of human resources in their organizations and their role in the success of integration have failed to reach success. they need to be informed and involved more actively throughout all the stages of the merger process. While it is true that some of these failures can be largely attributed to financial and market factors. financial and legal fronts. a company analyses the feasibility on the business. If a merger is to reach its full success potential. but fails to recognize the importance attached to the human resources of the organizations involved. PricewaterhouseCoopers global study concluded that lack of attention to people and related organizational aspects contribute significantly to disappointing post-merger results.It is reported that one of the main reasons for failure of a merger or acquisition is based on Human Resources neglect. Cartwright and Cooper (2000) acknowledged that the leading roles of modern human resources functions are to be actively engaged in the organization and perform as a business partner and advisor on business-related issues.
To be effective. It is very important for management to communicate clearly and regularly to all employees the implications of the merger. By involving people at all levels of the organization. STRATEGIES FOR MANAGING HUMAN RESOURCE IN M&A I. during. employees are often kept in the dark about the sale of the corporation. including the planned changes to working practices and organizational processes. Communication is of utmost importance in every stage of a merger or acquisition process. and after the acquisition. The communication process should also encourage two-way feedback between management and employees to make employees feel that they are contributing to the solution. and is the key to its success. compensation policies. II. the communication process has to be carried out in such a way as to avoid confusion and mixed messages. downsizing issues and company goals that need to be assessed. They can play a vital role in addressing any communication issues. employees concerns.the pre-merger stage allows HR to identify areas of divergence which could hinder the integration process. who may be anxious about possible job losses. skill sets. They often hear about the acquisition through the press or through the corporate grapevine. Retaining Key People 25 . Therefore. Management should share as much information as it can with employees before. Communication During mergers and acquisitions. This can lead to a distorted or misrepresented picture of the acquisition's ramifications and to counterproductive activities by employees. the merging companies are encouraging widespread acceptance of the merger process and reducing feelings of insecurity.
'the best of both companies can be integrated into a common culture for the new organization' (Hunsaker and Coombs 1988. This can create a win-win situation for both organizations.The retention of a talented workforce. but also on the remuneration of employees at all levels of the organization. Try to Establish a Common Culture Successfully integrating the two cultures of the merging companies is an essential step towards achieving a successful partnership. Both organizations. That information can raise awareness of potential 26 . and management needs to adopt measures to improve the retention rate of the best people in the merging companies. Pay and reward strategies can also play an important role in management's retention strategy but they need to be addressed early on in the merger process and should not only focus on senior executive pay. which is often a major reason behind the decision to merge. Conducting a cultural audit is a useful way of obtaining useful information about the two companies' differing cultures and helps to evaluate differences and similarities in work standards and practices. it can reduce employees' sense of insecurity and give them a better picture of what the future holds for them. should take priority during the merger process. If the communication process is performed effectively. Truthful and thorough communication with employees can play a significant part in management's retention strategy. the acquiring and the acquired. Rather than imposing one organization's cultural elements on the other. 62). will have unique and beneficial cultural elements. Defining and promoting the new corporate culture will enable employees to work together toward achieving the business goals of the new organization. III. since it will result in a corporate culture with which both sides can identify.
who will have a better understanding of the key issues that arise during the course of a merger. V. Provide Individual Counseling Individual counselling on personal adjustment and stress coping strategies can assist the employees to 'solve the problems associated with merger stress. recommend. and allows the merging company to take steps to minimise culture clashes by building an effective communication structure. or improve the employee's mastery'. its effects on employees at all levels of the organization and its impact on working practices and organizational structures. Training should focus on the implications of the merger for the company. demonstrate and initiate coping with merger stress strategies. Try to Eliminate the Them-Us Syndrome Acquiring organizations should try to eradicate any arrogance on the part of their personnel to ensure that acquired employees do not feel inferior and 'conquered.difficulties and issues in the merging process.' A post-acquisition atmosphere fostering mutual respect among management groups will facilitate a better understanding of the others' perspective and make a smoother transition. Training should also educate managers on what each stage of the merger process entails for them and for the company as a whole. Training and Development Training and development should be provided to senior and middle management and should focus on all aspects of the merger process. a counsellor can unveil new career 27 . IV. VI. In addition. Such interventions will facilitate more effective leadership on the part of managers.
the private carriers accounted for around 75% share of the domestic aviation market. aviation industry in India saw some important changes. In the early fifties. the Airports Authority of India (AAI) was assigned the responsibility of managing all national and international airports and administering every aspect of air transport operation through the Air Traffic Control. Some of the factors that have resulted in higher demand for air transport in India include the growing middle class and their purchasing power. including granting flying licenses.paths and job opportunities within the newly acquired organization. 80 domestic airports and 28 civil enclaves. The Air Corporations Act was abolished to end the monopoly of the public sector and private airlines were reintroduced. which include 13 international airports. 1. The sector has also seen a significant increase in the number of domestic air travel passengers. certifying aircrafts for flight and issuing all rules and procedures governing Indian airports and airspace.With the liberalization of the Indian aviation sector. There are over 450 airports and 1091 registered aircrafts in the country.3 AVIATION INDUSTRY INTRODUCTION Indian Aviation Industry is one of the fastest growing markets in the world. low airfares offered 28 . The Airport Authority of India (AAI) manages a total of 127 airports in the country. by virtue of the Air Corporations Act 1953. In 2006. 7 custom airports. Finally. and. this monopoly continued for the next forty years. all airlines operating in the country were merged into either Indian Airlines or Air India. In 1990s. The genesis of civil aviation in India goes back to December 1912 when the first domestic air route between Karachi and Delhi became operational. The Directorate General of Civil Aviation(DGCA) controlled every aspect of aviation. which can provide incentives for employees to remain with the organization. the industry has witnessed a transformation with the entry of the privately owned full service airlines and low cost carriers. pilots.
increasing outbound travel from India. Increasing liberalization and deregulation has led to an increase in the number of private players. Indian Aviation Market Pre 2004 Domestic Market • Limited Carriers • Stable 8-10% growth p.. the growth of the tourism industry in India. : Post 2004 Domestic Market • Sudden inflow of new carriers & spurt in capacity • High market growth stimulated by huge fare reductions. This has led to intense price competition due to which full service carriers like Jet Airways.by low cost carriers like Air Deccan. The indian aviation industry comprises of three types of players: • Full cost carriers • Low cost carriers (LCC) • Other start-up airlines It is a phase of rapid growth in the industry with estimated growth of domestic passenger segment at 50% per annum. The customer has thus gained enormously as a result of liberalization of the sector. • Supply in line with demand 29 . Indian Airlines and Air Sahara are giving discounts of up to 60-70% for certain routes to match the new entrants' ticket prices.a. etc.
rapid fleet expansion. there is no shortage of competition. With three major airline groups and four smaller carriers all operating domestic routes. • Airport & air traffic infrastructure under increasing pressurewith added capacity. shortage of skilled labor. high cost due to holding times ( approx. INDIAN AVIATION SWOT ANALYSIS Strengths Liberal Environment: India's airlines operate in a liberal environment in both the domestic and international spheres. 30 . $25 mn in additional fuel for jet airways alone).• Yields stable at high levels International Market Restricted Bilateral-Limited Access to Opening foreign carriers carriers AI only designated as Indian Carriers International Market up being international allowed market to fly commenced in 2003-04 with private international Impact of changes post 2004: • Low yields and high aviation turbine fuel costs led to huge losses(estimated at $500 mn for FY07) • Rising labour cost. • Delays at major metros and lack of slot availability . & intense price competition stretched out the problem for big airlines.
the largest foreign carrier by capacity into India. The LCCs too. improved safety and good operational reliability. and without restriction on pricing. Nevertheless. Emirates for example. flight cancellations and overbooking. carriers are free to operate any domestic routes without seeking permission from the government.although this factor combined with excess capacity has tended to depress yields. Until a couple of years ago. On the international front. however against the background of a global economic recession. and the relationship has generally been even stronger in developing countries. will operate 185 weekly frequencies to ten cities across the country by the end of 2009. most of these operational issues appear to have been resolved. this was a creditable performance. Jet Airways and Kingfisher Airlines are competitive in terms of their inflight service against the leading carriers in the world. ensuring a high quality passenger experience. with a Skytrax 5 star rating. One condition that airlines find onerous however. which the passenger does not necessarily see value in paying for. Kingfisher for example is one just half a dozen global carriers such as Singapore Airlines and Cathay Pacific. Between 2004 and 2007. the Indian government has pursued an increasingly liberal approach to bilateral air services agreements with key overseas markets. is the requirement to operate a proportion of ASKs to remote and underdeveloped regions of the country. This slowed to 6. offer a comfortable. by and large.5% in 2008. India enjoyed four years averaging 9% per annum GDP growth. Modern Fleet: In light of the fact that much of the growth in Indian aviation has occurred in the last five years. however since being acquired by Kingfisher. Air Deccan was one carrier that had developed a reputation for poor on-time performance. resulting in greater access for foreign carriers. India's carriers have a combined international capacity share of just over 36% but face strong competition from foreign carriers. Economic Growth: Economic growth has historically been the primary driver of air traffic. both full service and low cost. efficient and reliable service. the country's airlines operate a relatively young and modern fleet. In fact it could be argued that the full service product on domestic routes is excessive for the sector lengths involved and results in a higher cost structure. The stock market has soared 25% in the last month and the outlook for growth and consumption has improved. The increased business confidence following the general election result in May 2009 has eased concerns that growth may slow further. which is a positive for the aviation industry. High Quality: India's airlines offer a good quality product in each of the operating models in existence. 31 .
which had to date been blocked by coalition partners. Air India. and morale within the bloated workforce is at a low. The carrier is estimated to have posted losses of close to USD1 billion in 2008/09. it is also fair to say that it is becoming less so. With the backing of either the government or large corporations. In addition. many of India's airports were forced to operate well above design capacity. After decades of neglect. has retained the portfolio. Deep Pockets: Over the last three years. which brings experience and stability to the aviation industry.has resulted in carriers remaining afloat that would perhaps in other circumstances have failed. With no clear direction. Airways Infrastructure: Although congestion on the ground is relatively visible. The resulting congestion in the terminals and on the runways delivered a poor experience for the passenger and a costly. It is imperative that the government develops a turnaround strategy for Air India as an urgent priority. However. The prospect of a government which has the ability to last its full term and pursue its agenda is extremely encouraging.namely deep pockets . a characteristic that would normally be considered a strength . several carriers have been able to access funding that they might have been denied on a strictly commercial basis as 32 . This too results in expensive aircraft holding patterns. management instability at the top and continuing issues with the integration of Air India and Indian Airlines. as the airport modernisation program starts to deliver results. and improving facilities at Delhi and Mumbai. but there are tangible signs of improvement. with new airports in Bangalore and Hyderabad. Weaknesses Airport Infrastructure: The rapid growth in air traffic over the last few years exposed the deficiencies of airport infrastructure across the country. inefficient operating environment for the airlines. although a weakness today. India's carriers have accumulated billions of dollars in losses and debt. the carrier is in need of radical restructuring. Minister Praful Patel. is in a dire situation. with a stronger majority is expected to allow the new administration to push ahead with further economic reforms. The upgrade of non-metro airports remains behind schedule so it may be another 3-4 years before we see good quality facilities across the country.Political Stability: The re-election of the Congress Party. another current area of weakness is the limited investment that has taken place in improving infrastructure for air traffic management. National Carrier: The state-owned carrier. indirect flight paths and sub-optimal use of runways. who was the architect of the dramatic transformation of the aviation sector. Ironically.
Even. High Cost Structure: India's airlines operate in a relatively high cost environment. Trips per capita remain low even by the standards of other developing countries. a country with a population of just 21 million. the fact that high quality ancillary services such as MRO and training are not currently available in India. while international passengers doubled. In addition. resulting in reduced aircraft utilisation. India has only just scratched the surface of the potential for the aviation sector. less than 1% of Indians travel overseas each year. compared with India's 1. Skilled Resources: Domestic air traffic in India tripled in the five years to 2008. which can increase the cost to 60% above the international benchmark. means that aircraft and personnel have to be sent overseas. particularly as pilots. airlines have struggled to raise fares to break even levels.standalone airlines. there is an absence of high quality training infrastructure incountry to deliver the resources to support future growth. The limitations of airport infrastructure also increase costs due to the fact that carriers are unable to schedule fast turnarounds.1 billion. and by learning on the fly. Geographic Location: India is ideally positioned as a major aviation hub at the crossroads between Europe.4 million in 2008 for the entire country. India has been put on notice that unless this issue is addressed. The gap was partly addressed by employing expatriates. The fact that aviation was a neglected sector for so long has allowed airports such as Dubai and Singapore to effectively establish themselves as offshore hubs for 33 . Opportunities Market Growth: Despite the rapid expansion of recent years. primarily due to the punitive taxation structure. the Middle East and Asia Pacific. It is not difficult to see the expansion potential from such a low base as economic growth continues apace. This lack of personnel affects the government as well and the FAA has expressed its concern at the shortage of qualified safety inspectors within the Directorate General of Civil Aviation (DGCA). Furthermore. The greatest impact is felt in the area of sales taxation on fuel. China's domestic market is more than four times the size of India's 40 million passengers. it may be relegated to a Category II nation. has a market 25% larger. which would mean that Indian carriers would not be permitted to increase services to the US. Inbound visitor nunbers at 5. Australia. This means there is a lack of in-depth experience and knowledge at all levels. As a result of the intense competition which has been perpetuated. were less than for Dubai or Singapore. This rate of growth far outstripped the capacity to develop skilled technical and management personnel. Similarly on the international front.
Similarly the potential for India to develop as a global traffic and services hub is contingent upon it being seen as a safe and attractive destination. is a strength which Indian carriers simply cannot match at present. and not because of. MRO and training. and its airlines receive international awards for their service. there may be an opportunity to leverage its huge home market to compete with these longer established hubs. however inbound international traffic in particular is sensitive to such events. The ability for a passenger for example to travel one-stop from Ahmedabad toHamburg. Terrorism: India has seen frequent terrorist activity in recent years. as India's airports improve. The country has shown great resilience in bouncing back after each attack. and they now have a significant head start. This could in due course lead to an opportunity for India to develop as a global outsourcing hub in areas such as aerospace manufacturing. with high frequencies from multiple destinations to their hubs. Higher Quality: India has already managed to develop a dynamic aviation sector despite. The improvements in airport and airspace infrastructure. Threats Middle East Aviation: The carriers of the Gulf are aggressively expanding in India. higher quality and more efficient manner. 34 . the development of indigenous training and maintenance facilities and the potential for fiscal reform. all point to the potential for Indian aviation to increasingly operate in a lower cost. or multiple daily frequencies from Mumbai to London. However. its environment. from where passengers can access extensive global networks.Indian passengers. connecting at an attractive hub. It will take time and the question is how far ahead will the Middle East carriers be by that stage. Lower Costs.
CHAPTER 2 INTRODUCTION TO JET AND SAHARA AIRLINES AND THEIR MERGER JET AIRWAYS: 35 .
Since a very high percentage of the Indian domestic air traffic comprised of business travelers. Indian Airlines. which was set up in 1993 after the central government opened civil aviation to private investment. Pune India’s main stock exchanges and had obtained permission to operate international flights. Jet Airways was set up with the objective of providing high quality and reliable air travel in India.Jet Airways is one of India’s premium domestic airlines and arguably the most successful. we fly people' is the motto of this private owned airline. in the early 2000s in terms of passengers carried. ''We don't fly aircraft. 36 . warmth and caring. This led to a product and service design that aimed at world class norms in professional service and efficiency. their focus from the very beginning was to emerge as the "Businessman's Preferred Airline". overtook India’s national airline. By 2005. Jet Airways had been listed on Symbiosis Institute of Business Management. The airline. beginning with the choice of aircraft itself. They have chosen the yellow rose as their motif as it symbolizes friendship.
on having an unbeatable record of on-time flights and providing world-class frequent flyer benefits to our customers. Jet’s dominance in the Indian market has been severely challenged. Jet’s market share has declined to 37 per cent from 42 per cent at the beginning of the fiscal. Last October and November.Their operations commenced with a fleet of four Modern Generation Boeing 737300aircraft. Jet Airways is one of the few airlines in the world to receive the ISO 9001 certification for its in-flight services. Moreover. These aircraft were the first to fly the Indian skies. they tied up with and are co-hosted with SABRE one of the world's best reservations systems. For world class norms in service. This led to a loss of Rs 21. Amid the rush of new players. Pune In the recent past. 37 . Jet had to cancel or combine almost 1. In the Delhi-Mumbai sector — which accounts for 50 per cent of the country’s air traffic — the industry’s capacity has increased by 70 per cent in the past year.000 flights due to acute pilot shortage. they utilized the training facilities of Ansett (Australia). They pride themselves. they were aided by Speedwing (a British Airways subsidiary) to conduct a program on Customer Service Excellence for staff across functions at all levels.9 crore. however. But Jet’s grew by a mere 7 per cent. Jet Airways operates over 250 flights daily to 42 destinations across the country. The large number of low cost carriers that have entered the industry has led to an explosive 20 to 25 per cent growth for the industry. For training and conversion of their pilots and engineers. KLM Royal Dutch Airlines and Northwest Airlines. rivals also poached Jet’s pilots and other airline staff. CFM 56 engines power all the Boeing aircraft while the ATR aircraft are powered by Pratt and Whitney 127 engines. Jet has also struggled to keep pace with the industry’s capacity expansion. The average age of the fleet is 3 years making Jet Airways the operator of the youngest aircraft fleet in Asia. Jet Airways' current fleet consists of 33 B737 new and next generation aircraft and 8 modern turbo-prop ATR72-500 aircraft. To ensure accurate and efficient reservation systems. Symbiosis Institute of Business Management. The market leader was obviously taking a beating. through their alliances with British Airways.
Jet Airways’ successful IPO In March 2005. 2006. Jet Airways also plans to start operations to the US this year subject to the government nod. At a time when international airlines have gone in for global alliances to leverage the regional strengths of partner airlines. Jet Airways Limited became the first Indian airline to issue shares to the public. Indian has to pull up its socks and prepare itself for the competition from private airlines.Strategy The Jet Airways mission is to make it the best airline in the world in customer service and efficiency. It remains to be seen how the Centre and the public sector Indian (formerly Indian Airlines) Symbiosis Institute of Business Management.even larger than state-owned Indian Airlines with a fleet of 90 aircraft. South Asia and Europe. when it made a successful debut on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) simultaneously. While Jet has rights for London and an understanding with British Airways. with deliveries set to commence from mid-2007. With a combined fleet strength of nearly 80 aircraft and a market share of almost 50 per cent in passenger traffic. From being an agent for a Lebanese carrier in the early 1970s to running India's largest airline. Pune respond to it. These include destinations in South East Asia. it has not been able to get clearance for the U. it has been an eventful journey for Naresh Goyal who unveiled the biggest acquisition in the country's civil aviation history. on January 19. The airline bought out rival Air Sahara for $500 million to make the carrier India's largest . the move by Jet to acquire Sahara may trigger a process of consolidation in the domestic sector. The much awaited 38 .S. Jet Airways clearly wants to emerge as the lead player in the domestic sector and get a fair share of the regional/international routes that are now in private operation. Now that the Government has cleared the fleet acquisition scheme.53 billion. The airline will also acquire a large fleet of Boeing aircraft for some $2.
1899 crore. 1155. through the sale of 1. Pune Jet Airways' tremendously successful IPO further consolidated the airline's position in the Indian aviation industry.72 crore shares (20 percent of the company's equity) of Rs. Symbiosis Institute of Business Management. which would prove to be advantageous to the airline in securing further loans on favorable terms and in negotiating lease agreements for new aircraft.Initial Public Offering (IPO) raised Rs. A part of the amount raised through the IPO was expected to be used to retire some of Jet Airways' high cost debts (primarily to the International Finance Corporation and the Infrastructure Development Finance Company).10 each. It also proved that the large number of low cost airlines (LCA) being set up in the country found it difficult to affect Jet Airways' popularity with passengers. which was a gain of around 18 percent over the issue price. but the lowest price the shares were traded for on either of the bourses was Rs. Analysts said that retiring its high cost debts would bring down Jet Airways' debtequity ratio from around 5. Naresh Goyal said there was a possibility of the airline looking at an international shares listing in future if such a move was found to be feasible. 1100. the closing price of the shares exceeded Rs. The issue price was set at Rs. 1300. At the end of the first day of trading. and the rest to fund the airline's ambitious expansion plans. Air Sahara: 39 .4:1 before the IPO to 1:1.
2007. JetLite (previously known as Air Sahara) was born on April 16. The JetLite aircrafts are Boeing 737-300. However. 2006. The takeover deal was officially completed after four days. Eventually. Boeing 737-400. Jet Airways. made on April 12. 2004. Initially. Currently. announced its attempt to takeover Air Sahara. on January 19. 1993. Jet Airways withdrew from many of its routes. wasn't unnoticed. covering as many as 27 destinations across India. It began its operations on December 3. Air Sahara was established on September 20. the operations were concentrated on the northern parts of India. 1991. In order to compete with full service carriers operating in the sector. 2000. JetLite has managed to form a clientele from not only the elite section of the society. Nonetheless. Jet Airways and Air Sahara 40 . On March 22. It was then known as Sahara Airlines.JetLite was paying too much for Air Sahara . Over the years. Jet Airways agreed to pay a whopping Rs 1450 Crore to Air Sahara. 2007. a private player in India.the deal was called off. due to certain disagreements about the pricing . In the present time. Boeing 737-800 and Bombardier CRJ-200ER.Air Sahara is one of India’s leading private airlines. but also from the middle class people. offering attractive air fares to its passengers. Air Sahara was taken over by Jet Airways and thus. It is part of the multi-Crore 'Sahara India Pariwar' business conglomerate. with a fleet of two Boeing 737-200 aircrafts. on April 20. for the takeover deal. but soon spread to other parts of the country as well. JetLite has been positioned as a value carrier. JetLite has five aircrafts. Boeing 737-700. the second attempt. Sahara Airlines was re-branded as 'Air Sahara' on October 2. to pave way for JetLite operations. Air Sahara became an international carrier with the start of flights from Chennai to Colombo.
It was making losses. thereby achieving a pricing power in the market. a move that would help the Naresh Goyal promoted carrier to become the biggest domestic carrier. As part of the deal. Pre Acquisition Review Jet Airways Scheme of things • In 2003. • To diminish the no. Sahara 's assets including infrastructure and parking slot facilities in the country would now be owned by Jet. Jet Airways has struck a deal to buy Air Sahara for Rs 2. • To enter into the low cost airlines business in a big manner. Air Sahara Scheme of things • The mismanagement of the airlines was adding burden to the group . Jet airways had a 44% market share which reduced to 33% market share in 2006 due to competition by low cost airlines so Jet airways wanted to maintain the leadership position in te industry. • To reduce the congestion time in Airports. 41 . o f aviation companies in the market.300 crore (Rs 23 billion).In the biggest aviation takeover in India. • To avoid the delay to purchase new airlines which typically had a waiting time of 2-3 years.
the price tag apparently kept them out. Although others in the aviation industry. Jet Airways has taken its own time to work out the deal.• It wanted to exit airlines business & focus more on its booming Real estate business. there is a revenue upside • A dominant market share of about 48 per cent. • There was a huge liability both Long term as well as short term & its aircrafts were also on lease or on loan. What Jet will get from the Air Sahara Merger? • Complete dominance of parking bays and airport infrastructure • Analysts estimate that a cost saving of Rs. Jet can increase its capacity without expanding supply. So it wanted some quick money to pay off its mounting debts. were also interested in the acquisition. 150 crore -200 crore is achievable • Jet will now be the only private Indian carrier to fly international with not competition for 3 years • If Jet can bring Sahara up to its own standards and charge its own fares. as well as the license to fly a few international routes. that its true value lies. under which it says it will not take on the liabilities 42 . Solution • A merger with Jet Airways was an attractive & an easy bailout for Air Sahara from the Aviation Industry. including rival Kingfisher. it is in the entrepreneurial advantages and the rights Air Sahara holds in the various domestic sectors and airports. More than in the capital or asset value.
Moreover. in international operations. The next biggest competitor (Indian) will be unable to offer effective competition in the present circumstances. The deal has distinct advantages for both the parties — it can make Jet the major player in the domestic sector. It will also be able to leverage its domestic size to develop a stronger international presence. Symbiosis Institute of Business Management. Pune. The competitive landscape has been altered. Jet Airways has been able to arrest the development of an emerging hypercompetitive environment.4 per cent (average) on international routes — much lower than the break-even level of over 70 per cent. by reducing competition. Further. both in the Indian and Asian context. The two airlines were among the first to enter the field when it was opened to the private sector. cost structure and financial resources. aircraft size. Going by market reports. out of which $6 million were on account of the Delhi London and Chennai-Singapore sectors.of Sahara. to put its house in order. Symbiosis Institute of Business Management. 2300 crore may go towards settlements of dues and debts. the deal marks the first major step towards consolidation in the Indian aviation industry which has witnessed unplanned and unbridled growth over the past few years. much of the Rs. with a market share of about 48 per cent in traffic. It will help Jet’s new business model to align market shifts with products (network. Jet has bought time. Jet Airways’ decision to acquire Sahara is very significant from a larger perspective. Pune Jet has appointed its vice-president (marketing) GaurangShetty to lead the integration process from its end. This combination will dominate the Indian airline market for the near term as Jet will have a larger scale and scope than any other Indian carrier. and frequency). Jet plans to address 43 . the airline incurred losses worth $8 million on international routes. and bale Air Sahara out of its mounting liabilities. Its passenger load factor is 52. It’s no secret that Jet’s international operations need some serious attention considering that last year (AprilDecember). It remains to be seen what lessons the more recent entrants will draw from the Jet-Sahara deal — they will have to decide if it will be advantageous to remain separate or go in for consolidation through mergers and acquisitions.
They expect that Sahara’s passengers may choose lowcost carriers. Indian hopes to exploit this chunk. Pune 44 .four key issues again — rationalization of routes.5 billion to expand international routes. Interestingly. It could be the biggest competition for the Jet. May survive purely as a low cost carrier playerSymbiosis Institute of Business Management. Has questioned the price of this deal and raised questions about monopolistic Practices SpiceJet . renegotiating Sahara ’s leases. even national carrier Air India. Has ordered 111 aircrafts along with Air IndiaAir India.Likely to be most hurt by this merger. Indian officials believe that Jet may not be able to capture all of Sahara’s existing clientele after the merger. Likely to tie up with Jet for an interline deal. How the deal could impact Jet’s financials Jet also has to ensure that the integration happens quickly enough. Jet is also keen to expand capacity on domestic routes by 15 per cent. The competitive scenario Indian. Any delays will create openings for rivals. Has stayed away from joining the lobby group that hopes to take on Jet. replacing a part of its fleet. as they are far more price-sensitive than Jet loyalists.Sahara combine. Kingfisher. and improving asset utilization. Sahara’s airport infrastructure could help Jet get better returns. A former bidder for Sahara . Both Indian and Air India have just ordered 111 aircrafts. Its biggest threat is likely to come from the public sector Indian — with a market share of around 30 per cent — and maybe. Jet has ordered 30 new aircraft for $2.Has plans to expand fleet rapidly. Seriously considering a fullfledged entry into the domestic market either on its own or through a merger with Indian Air Deccan.
Go Air. The point that an entitlement to airport infrastructure were awarded to an entity. the Jet. Plans to set up for an entry into the cargo business as well as an aircraft engineering company Major areas of concern preventing the deal from taking off: The government has expressed concern regarding the deal and has opposed it on a number of fronts. However last month the airport panel cleared the Jet.. It was also decided that the government would have nothing to do in the Jet. May continue to depend on low cost carrier advantage. With the clearance issues done with and non interference on part of the government.with the Indian and Air India next in queue.. Firstly.Sahara deal on whether they would merge or set up a separate company. Secondly. the provision to award Sahara’s entitlements to the Jet Airways has been raised by the CPI (M).Sahara deal transferring all of Air Sahara’s assets to Jet Airways. entitlements couldn’t be transferred was strongly supported by the party. delays in securing regulatory clearances have forced the two airlines to extend the timeline for the culmination of the deal. 45 . With competition rising and many small players entering. perhaps mergers and acquisitions have finally caught on this sector of the industry too. but if the entity (Sahara) ceased to exist. reservations about how Jet got the money for the acquisition are strongly expressed Thirdly.Sahara merger looks promising for the Indian aviation sector.
CHAPTER -3 METHODOLOGY AND DATA COLLECTION 46 .
METHODOLOGY 3. 3. 5. 3. • Abrupt changes within the teams and management are disturbing. 47 .1 Methods of data collection : The different methods used for data collection are survey from JET and Sahara employees. • Process is found to be too time consuming and less results and also unexpected results are seen. • Difficult to deal with new culture.2 Sample of Study : Sample Questionnaire Name of the Employee and Department: _____________________ Please answer the following questions about Jet and Sahara merger Questionaaire : 1. • Many lives are affected. How does Jet and Sahara merger affect the employees? Are you satisfied with the process? What are the major changes occurred due to merger? Mention the challenges faced? What kind of structural changes taking place? Based upon above questions below answers were achieved : • Merger has given birth to forced attrition in organization. 4. research from web and magazines and journals. • Change in management staff is a big issue and creates communication gap. Both Jet and Sahara resources were asked to leave the company. 2.
48 . • Magazines • Journals on merger and acquisitions • Jet and Sahara websites • Internal employees of Jet Airways. By some acquaintance some data is been collected.3 Source of data : the different sources used and referred are as below. The internal data of any company is not easily revealed and is not available in magazines or websites.4 Limitations : There were many challenges and limitations faced during this project.3. 3. Also one is not allowed to interact with internal resources or access internal data.
especially when he gets a big bonus for the deal. 49 . concluded that some companies focus too much on cost cutting while neglecting day-to-day business. An executive’s ego gets satisfied when he buys the competition. A merger may also have been done for just glory than conforming the strategic objectives.CHAPTER 4 DATA ANALYSIS AND INTERPRETATION Mergers and Acquisitions: Issues and Concerns Mergers and acquisitions fail if they are not in conformance with the strategic objectives. A study carried out by McKinsey & Co. and thereby profits suffer. Bankers.
lawyers and other assorted advisers who can earn big fees from clients engaged in mergers are biggest motivators for these deals. Economies of scale thought of at the time of deciding the merger can become elusive. The organization may become too fuzzy and unmanageable. Mergers may also be driven by the fear of Globalization. The step may be defensive when the management thinks that it is better to acquire before getting acquired. Some mergers and acquisitions have also failed because of differences in the top management. It is a result of lack of clarity, at the time of decision of merger or acquisition, of the future strategic steps to be taken. It is most important that mergers and acquisitions are backed with strategic objectives and not driven by the hype or selfish motives of the management. It needs proper corporate governance on the part of management. Talent retention becomes very important in the wake of merger or acquisition. The company needs to ensure that the best talent remains in the company. For that it needs to have proper plan at the time making decision of merger or acquisition. It also needs to ensure that the culture does not change drastically or if it needs to be changed there is proper change management in place. Also, the top management needs to form a clear common vision at the time of making the decision for merger or acquisition. Importance of Valuation A valuation of a target company or business in needed to decide the maximum price that a purchaser should be willing to pay for control. The seller responds to the offer that a bidder makes, based on the bidder’s valuation. However, a seller also could make his own valuation of a shareholding or business unit, as the minimum cash price that would be acceptable or as the target price to achieve. There are many mergers that have failed due to difference in the Valuation techniques used by different companies. A recent case in the Indian context is the HLL-TOMCO merger that took place in the 1992. A reason why there was large hue and cry was raised: a) The swap ratio that was derived and finally agreed upon was that for 2 shares of HLL, the HLL shareholders will get 15 shares of TOMCO. This was deduced on
the basis of three valuation methods. Weightings were given and then a value was derived at. The valuation methods that were used were the yield method, the asset value method, the market value method. b) And, an independent committee arrived at a value of 5:15 swap ratio as against 2:15 as was agreed upon by the parties in merger. This was the reason behind the deal falling out. The Matrix-Stride merger plan was also called off due to non agreement on the valuation front of the company. The Jet-Sahara Fallout (absence of strategic planning) The major reasons due to which the much talked about aviation industry felt flat on its face were: a) The policy related to mergers and acquisition in the aircraft industry did not clearly specify the terms of transfer for airport infrastructure. The guidelines though clear on parking bays and landing slots, did not specify the status of aircraft hangars, check-in counters, cargo warehouses, passenger lounges and other such airport facilities. b) Also, Jet Airways enthusiastically overvalued Air Sahara, and later wanted a discount on the original price (20 to 25 percent). This is typically a case of overvaluing a company whose business model was not robust.
Some of the reasons why Mergers & Acquisitions have failed in recent times are as follows :1. No Guiding principle As rudimentary as this sounds, we often see merging companies fail to develop a set of guiding principles linked to the merger's strategic intent. These principles
should get at the very logic of the transaction—is the merger absorption of one company into another or a combination designed to take the best of both? Perfection may not be possible, but these principles will ensure that all decisions drive the combined entity in the same direction. In a best-of-both-companies transaction, for example, one principle might be: "Combine IT organizations by selecting the most up-to-date systems and deploying them across the combined entity." 2. No ground rules While this sounds similar to point number one, ground rules for planning provide nuts-and-bolts guidance for how the planning teams should act as they begin to put the face of the merged entity on paper. These rules should include processes for how decisions are to be made and how conflicts should be resolved. 3. Not sweating the details It's hard to believe, but detailed post-close transition plans can be lacking even when two companies are working hard and have toplevel leadership closely engaged. Why? To some extent, this reflects the daunting complexity of any integration. It can also, however, reflect the culture of the companies and a resistance to detail and top-down accountability. The acquirer may be suffering from acquisition fatigue, management distraction, and reluctance to share information, or a simple unwillingness to follow a methodical decision timeline. 4. Poor stakeholder outreach All relevant stakeholder groups—both internal and external—must receive communication about the transaction, early and often. While employees (see sin number eight), customers, and regulators get the bulk of the attention, there is a long list of additional stakeholders such as communities, suppliers, and the like who also need care and feeding. Management must strive to understand how these groups view the deal and how they might react to changes such as new pricing, the elimination of vendors, and adjustments in service and personnel. 5. Overly conservative targets Management must set aggressive targets from the start. This helps reinforce and clarify the transaction's guiding principles and strategic intent, specifically, how hard the integration teams need to push for cost savings and revenue growth. Most companies tend to focus on one or the other— but neglect to place adequate emphasis on both. Experience demonstrates that management never gets more in synergies than it requests. So, build your targets with some stretch and expect that your people will find a way to get there. 6. Integration plan not explicitly in the financials We have seen merging companies build detailed integration plans only to stop short of driving them into
align leadership around it. Cultural disconnect Bringing disparate groups of people together as one company takes real work and represents an effort that is often largely overlooked. why. 9. absent real facts. and hold substantive events to give employees a chance to participate. Keeping information too close There is a natural hesitancy to share information. Following handoff. you need to create financial benchmarks that can be tracked. 8. Management must set a vision. Allowing the wrong changes to the plan All the hard work and despite meticulously avoiding sins one through eight. simply acknowledging the issue or handing it off to specialists is not enough. Tell employees what you can. 7. every company needs clear decision rights about who can change the agreed-upon plans. and current regulations put pressure on what management can tell the organization without going to public disclosure.the combined entity's operating financials in a clearly identifiable manner. However. Institutional memory is short and the plans are often redone on the fly (see sin number nine). and with what approvals. some companies still miss the mark. 53 . While the integration plan will evolve. and when you will be able to do so. Detailed actions and well articulated expectations of behavior connect the culture plan to the business goals. under what circumstances. The popular trend toward empowered line managers and decentralization carries the risk of handing off carefully designed plans to new decision makers who are not steeped in the balances and considerations that made the plan viable in the first place. it is a critical aspect of any transaction. the rumor mill will fill the void. Culture change management is not indulgent. tell them what you can't tell them at the moment. Also. However.
CHAPTER 5 CONCLUSION AND RECOMMENDATIONS 54 .
Merger and acquisition (M&A) bring together different sets of people. counseling. operational and strategic concerns. The Human Resource dimension of M&A should be accorded the same emphasis and attention given financial. unified organization. HR no longer plays a dormant role and is emerging as a strategic business partner where key initiatives undertaken such as communication. coaching and compensation planning. processes and technologies with the common objective of creating a larger. these issues are rarely considered until serious difficulties arise. support workshops. However. career planning. building trust. rationalization and integration of the people. Human Resources (HR) has the potential to play an important role during all stages of M&A. legal. HR Challenges in Mergers and Acquisitions 55 .CONCLUSION Mergers & Acquisitions (M&A) has become the most important strategic element driving business growth and excellence. have significant business impact. Mergers and acquisitions will continue to be an ever-present characteristic of the modern corporate landscape. training. processes and technologies of both organizations. The organization aims to benefit from the synergies of merging organisations by consolidation.
Depending on how the two companies see their position in the merger. partnership. and the main reason attributed for the failure is the challenges faced in managing people related issues. due to the globalization phenomenon. A clash of management styles 56 . The problem Mergers are failing to meet their objectives. management disputes. growth in the outsourcing mode of working. hostile. Loss of productivity 3. the need to speed up growth. to meet their business goals. adversarial. mergers and acquisitions have become a worldwide growth story. Incompatible cultures 4. Despite a well planned strategy acquisitions have found to be a failure. culture clashes. The top seven obstacles to achieving success with a merger or acquisition are: 1. has forced companies to think about using "mergers and acquisitions" as a part of their business strategy.rescue. which are the basic reasons why mergers fail.The rapid changing business scenario in the market place. and the shortening of product cycles. Loss of key talent 5. Some reported findings People are the key to making a merger work. they would broadly fit into one of the four situations . It has been determined that most cases of failures have been because of employees not being able to adjust to the new environment. loss of talent and the inability to manage change. despite the high risks attached. In the last decade. An inability to sustain financial performance 2. and the information that over 85% of them have failed during the process of integration. and it is the people-related problems like. and/or many good employees leaving the organizations during the process of the integration.
it is the Organizational Design that needs focus. employee. and cost. and treating people fairly are the other areas in this stage that plays a significant role. Maintaining and building morale and loyalty.6. Remuneration also plays a key role and needs to be considered from the multiple perspective of strategy impacting employer. it is the responsibility of the HR to plan and manage the integration process. • Detailed HR due diligence • Employee communication • Talent retention and selection 57 . and managing this impact is an important part of managing a successful transition to a unified leadership.Right people in the Right Positions. Objectives / synergies not being well understood All these obstacles are either directly or indirectly related to the strategic management of people and that cultural differences between companies may be the single highest barrier to success. particularly assessing and selecting the right leadership talent . In the post-deal stage. In the pre-deal stage. An inability to manage / implement change 7. and organization. By recognizing and responding appropriately to the impact of the deal on each employee. the usual members of the deal team not being trained to identify or assess such issues. HR managers can set the tone for long-term success or failure of the new company. Given below are some reasons that resulted in successful integration. HR professionals usually have little involvement at the pre-deal stage. organization and culture issues tend to get overlooked. Stages of a Merger A merger has a profound effect on the people of both companies. which goes a long way to explaining why people. business model.
Companies may be dominated by a sales mentality. The steps a company can take to help reduce the potentially negative impact of culture differences. Every organization has its own unique business culture.· Remain alert to the symptoms of the post-deal cultural clash. or an engineer's rule. Ask for guidance on cultural issues. is suggested to be handled using these 8 steps. cultural differences are not insurmountable. Anticipate cultural challenges. Cultural integration is a major barrier to success in a merger. Understand that cultural differences can exist within the same country. Recognize that business culture in emerging markets does not stand still. SUGGESTIONS/ RECOMMENDATIONS The challenges faced on the cultural integration. Some companies have a culture of paternalism while others are more democratic and participative. 58 . Bringing two different business cultures together in any transaction can create frictions. It is also the most difficult area to understand and get right in combining two or more organizations.• Integrating the HR function • Integrating pay and performance management programs • HR planning and project management • Leadership development • Change management and culture Cultural integration The major sub-area of the HR challenges faced in a merger is the issue about culture. This situation is further compounded when differences in national customs and language are added to the mix. Have a strategy for overcoming cultural conflicts. Fortunately.
3. Develop change hypothesis 5.Build transaction context and rationale 2. Companies must look at establishing suitable processes that could be set up to manage this as suited to their work environment. it is important to address issues revolving around 1. and this is possible by bringing into alignment current and future needs of employees with the objectives of the company. It is important to be able to utilize the existing competencies to further the objectives of the company.must be the focus area to assess quickly and establish its link to the new business plans and strategies. Commitment . Determine degree of organizational integration 3.provided at the earliest and constantly addressed to satisfy queries from employees is a must manage situation. Design appropriate drivers Implement change Measure and reinforce change outcomes The study brings out that for mergers to be successful. 7. 2. Clarity .from all employees needs to be obtained. Determine drivers of behavioral change 6. Competence . Assess organizational behavior 4. MORE RECOMMENDATIONS 59 .1. 8.
Establish a single point of contact for the employees of the company to talk to and seek clarifications / answers to their queries. and have it ready for communication across the two companies. This person should have easy access to the Senior Management team to get their views to help clarify matters that arise. for this purpose could also be considered. and where necessary evolve a culture that suits the merged entity. 2. Engage employees in productive work and keep their motivation / commitment levels at the highest possible levels. Create a new Organization Chart. 6. to map the culture of both the companies. Communicate to provide clarity of the plans. 3. Evolve a clear vision and business strategy of the merger during the process of negotiation. Concluding remarks 60 . Involve the HR early in the cycle of negotiations. 4. If needed.The following recommendations are being put forth for companies to consider in making the process of mergers useful in retaining the people. Establish a strong communication system. using an external agency that can be seen as a neutral agency. 5. 1. and communicate continuously. to proactively stall the arising fears and insecurity amongst the people. and thereby protecting perhaps the most valuable assets that the company has acquired. and take up a detailed audit of the competencies of the employees to map their roles and responsibilities as aligned with the new chart.
It is clear that the success of a merger between two or more companies depends as much on culture fit as it does on strategic and financial fit and the proper management of change and employee response thereto. CHAPTER 6 LIMITATIONS OF STUDY 61 .
Also aviation sector being on high security we were not allowed to do much of the research inside the office premises. However to ensure that the data holds enough validity and reliability. Due to the same reason we had to depend upon websites. But the same was not received and it had become a challenge to prove the data is true and upto the mark. 62 . we have asked for written confirmation on data. journals and magazines for data collection.LIMITATIONS The interview and questionnaire were conducted within the company JET and SAHARA from their employees.
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google.wikipedia.html 65 . • Pragynan : Journal of Social and Management Sciences • Indian Economic Review (2) Websites: www.jetairways.com/ http://www.com http://www.org/ http://www.investopedia.com/airlines-in-india/domestic/air-sahara.com/ http://www.iloveindia.Bibliography (1) Books & Journals: • PCTE Journal of Business management.
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