Airlines begin disentangling; promoters rush to protect turf, minimise losses
WITH ITS deal with Jet Airways almost dead, Air Sahara has said it will run its airline on its own from Thursday. This came even as the two parties took the Rs 2,300-crore deal to the courts on Wednesday.
Air Sahara's confidence that it can handle things on its own perhaps comes from the gains it has made in the deal. Contrary to popular perception, Air Sahara has already pocketed Rs 780 crore which includes Rs 280 crore investment made by Jet (now written off) in the company over the past five months and a cash transfer of Rs 500 crore.
The battle is now over the Rs 1,500 crore lying in the escrow account. Till now, it was believed that the amount in the escrow account was Rs 500 crore. But the Rs 2,300-crore transaction was structured in such a way that money was paid out in tranches totalling Rs 780 crore with the balance in the escrow.
Sahara had pledged its equity amounting to Rs 500 crore as collateral. This will have to be transferred back to Sahara.
The shareholders agreement (SHA) provides certain covenants to both -- the buyer and the seller -- to protect their interests, and does not allow either of them to extricate from the deal, said a senior official of Air Sahara.
With the deal more or less dead, it is evident that a protracted battle in the courts is on the anvil. Sahara is likely to seek damages under general contractual law because Jet has allegedly acted with malafide intent. Sources said that since Jet has reneged on the deal, it may have to fork out liquidity damages for loss of market share, erosion of brand equity and other losses.
In a related development, the Ministry of Home Affairs, which had a meeting on Wednesday to discuss the security clearance for Jet chief Naresh Goyal, put off a decision on the issue. It is believed that a committee of top officials will be formed to oversee issues related to security clearance at a macro level so that a comprehensive policy can be evolved.
Alok Sharma, president (business development), Air Sahara told HT: "If we cannot close the security clearance for Naresh Goyal by Wednesday night, we'll run the airline ourselves from Thursday. Having said that our guys are extremely confident of handling things on our own."
"As far as the legal process is concerned, I don't want to comment on it as it is sub-judice," he said.
On Wednesday, Air Sahara informed a Lucknow court that Jet has terminated the deal and secured an interim order restraining Jet from withdrawing from the escrow account. District and Session judge Shiv Charan Singh also restrained ICICI Bank, with which the account was opened, not to make any payments to Jet. Sahara's petition sought interim measures for protection of property, subject to dispute.
The judge, in his order, said: "It has been alleged on behalf of the petitioner that the opposite party (Jet) has terminated the contract, hence there is a dispute and for which arbitrator is to be appointed in due course." The court gave Jet time till June 23, the next date of hearing, to file objections.
The order came on a petition filed by Sahara India Commercial Corporation Ltd, the holding company of Air Sahara, under Section 9 of the Arbitration and Conciliation Act. While seeking the restraint order, the Sahara counsel told the court that it feared that Jet would be at liberty to withdraw the escrow amount after midnight on Wednesday, when the deadline for share purchase agreement expires.
Around the same time, Jet approached the Bombay High Court, seeking a similar restraint on Air Sahara. It said the conditions agreed upon like transfer of infrastructure facilities by June 21 had not been met. Hence, Air Sahara should not be allowed to operate the escrow account.
Meanwhile, there have been talks of why Goyal had had a change of heart over the deal after coming so far. It is believed that price was not the consideration.
It may have been the failure of Jet to get the right valuation for his proposed Foreign Currency Convertible Bond (FCCB) issue. The company had planned to raise close to $800 million at a price of over Rs 1,200 per share. But with the market tanking and airline companies taking a huge hit, Jet has slipped to Rs 705.70.