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FLYING FORTRESS

JET AIRWAYS has struck a deal to buy Sahara Airlines Ltd for a little over $500 million (Rs 2,250 crore), inclusive of all its existing debt. The all-cash deal is the biggest aviation acquisition in India. The debt includes Rs 398 crore being raised from the Sahara group companies. After adjustment, the net enterprise value will be around Rs 1,800 crore The deal makes Jet the dominant player in Indian skies as the combined domestic market share of both airlines will be around 48-50 per cent and the combined turnover over Rs 7,000 crore .

india Updated: Jan 20, 2006 01:28 IST

JET AIRWAYS has struck a deal to buy Sahara Airlines Ltd for a little over $500 million (Rs 2,250 crore), inclusive of all its existing debt. The all-cash deal is the biggest aviation acquisition in India.

The debt includes Rs 398 crore being raised from the Sahara group companies.

After adjustment, the net enterprise value will be around Rs 1,800 crore.

The deal makes Jet the dominant player in Indian skies as the combined domestic market share of both airlines will be around 48-50 per cent and the combined turnover over Rs 7,000 crore.

In addition, Jet will have a fleet size of 80 aircraft with 426 flights per day. The majority of these flights are during rush hour. Sahara Airlines currently has 27 aircraft — all taken on lease -- with 126 daily flights.

It is believed that the Directorate General of Civil Aviation has sought the details of the transaction from both the companies.

Source said of the $506 million paid to Subroto Roy, $375 million would be used to repay the group's accumulated debts, while the balance is the profit which would be ploughed into the housing, realty, and media and entertainment businesses headed by sons Sushanto and Seemanto Roy.

Analysts say the acquisition makes Jet a mammoth operation with enormous infrastructure economies of scale. A huge pool of pilots, co-pilots and technical support staff will now be available to Jet.

In an environment where domestic carriers are battling infrastructure inadequacies, Jet will be able to leverage Sahara's 22 parking bays — nine in Delhi, seven in Mumbai, three in Kolkata, two in Chennai and one in Hyderabad.

The merged entity will have around 62 parking bays -- more than that of Indian (Airlines).

It will also have over 75 per cent space at prominent airports like Delhi and Mumbai. Experts say it will virtually control terminal 1B in Delhi and the private operators' terminal in Mumbai.

Jeh Wadia, MD, Go Air, says, “In the emerging scenario, there's a need for the government to revisit the allocation of existing and upcoming infrastructure — in the main, checking counters, parking bays, and take-off and landing slots. The government needs to allocate appropriate infrastructure equally to all airlines."

Ajay Singh, executive director, SpiceJet, says, "We'll stay in the low-cost space, while they'll consolidate in the full-fare space."

The acquisition gives Jet control over hangers with a total built-up area of 32,000 sq ft in Delhi and a huge area at Hyderabad airport.

Pending confirmation of regulatory approvals, both the airlines will continue to operate independently.

Jet chairman Naresh Goyal said there was no plan to convert Sahara Airlines into a low-cost carrier. It will be run as a full-service carrier. The Sahara brand will eventually be replaced by Jet, he said.

The Jet board will meet on Friday to consider raising money from a FCCB issue to fund the acquisition. It already has cash available from its IPO proceeds. Goyal said Jet would not retain all the employees of Sahara Airlines.

On the issue of the practice of discounted ticketing issued by Sahara Airlines, Alok Sharma, executive vice-president, said all those commitments would be honoured.

Sharma said workers would not lose their jobs and gross emoluments would not be affected. Upon closure of the transaction, based on requirements and performance, Jet will absorb suitable employees from Sahara Airlines.

Sahara Airlines' international flight rights are subject to regulatory clearances.

Currently, Sahara flies to London, Colombo, Singapore and Kathmandu.

It also has a code-sharing arrangement with American Airlines to fly non-stop to Chicago.