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Airline sale a profitable exit: Sahara

Sahara dubs the exit from airline business as "financially prudent and smart business move".

india Updated: Jan 27, 2006 12:28 IST
Press Trust of India
Press Trust of India

Sahara group on Wednesday said that the sale of its airline to Jet Airways for 500 million dollars was not a "distress deal but a profitable exit" from the business that did not hold promise and future in the short to medium term.

Dubbing the exit from airline business as "financially prudent and smart business move", Air Sahara Executive Vice President Alok Sharma, who has already been offered a slot by the Jet in the new dispensation, said there was no pressure on the group on account of financial and operational performance of the airline.

"But we felt that future profits in the business were suspect. Not only margins in the Airline business, particularly domestic, are extremely low but sky is also crowded with many players without a matching infrastructure," Sharma said and asserted that Air Sahara had been making profits for the last two years.

Asked about the difference in valuation of up to One billion dollars done by consultants Ernst and Young and the deal price, Sharma said that "our valuation was based on the company's future plans, including expanding the fleet from present 27 to 85 in next three-four years.

"Jet has its own plans and their valuation would be in accordance with that. But we are happy about the deal," he said, but did not give details of the total investment made by the Sahara Group in the Airline.

"We are possibly one fourth in terms of turnover and market share of Jet when it had gone public and the market valuation as per IPO pricing was two billion dollars," the Sahara executive said.

Sharma said the group had realised that what the business would look like in 5-10-20 years, but it was a non-core area for it though the venture gave a great degree of visibility.

"But the visibility cost was turning very high," he said and clarified that Sahara group would retain the brand 'Air Sahara' along with buildings, a Business jet and helicopters besides the coveted sponsorship for Indian Cricket team, which the group had bagged recently for Rs 313 crore.

As per the balance sheets of Air Sahara for last two years ending 2004-05, the company had made a profit of over Rs 31 crore on a combined turnover of over Rs 3,100 crore.

On the operational front, Sahara Airline was operating at a load factor of about 80 per cent, which was quite comparable to the market leader Jet.

Maintaining that concerns of airline employees were akin to any pre-merger issues, Sharma said that even Jet Airways would require a huge trained manpower to handle the fleet it has acquired.

"Our Aircraft employee ratio is almost same as Jet. Also Jet is on a major expansion. Even though Jet did not make a firm commitment (for obvious business reasones) it has assured to look at Sahara workforce," he said.

First Published: Jan 25, 2006 16:36 IST