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A major consolidation

Months after a rather contentious breakdown, the Jet Airways-Sahara deal is finally through. Three days of intense negotiations led to a clinching of the deal, which was formalised and given legal sanction by the arbitration tribunal. While there are still unanswered questions such as whether Air Sahara has been overvalued in this Rs.1450 crore takeover, there is no transparency about the financial aspects. The only other major issue relates to whether the merger-acquisition translates into any benefits for the aviation sector and, of course, the air passengers. Though a basic agreement was reached even in January 2006, Jet Airways withdrew when the share purchase agreement lapsed. The two airlines got into a bitter court battle that landed them before the arbitration tribunal. With an advance of Rs.500 crore already handed over to Sahara, Jet Airways has now agreed to pay up another Rs.400 crore immediately and the balance in instalments. Had the tribunal's award gone in favour of Sahara, it may have been awarded damages. So it made financial sense at this stage for Jet to rework the agreement and bargain for at least a 40 per cent discount on the shares purchased.

Now that the Government of India has cleared the merger of Air India and Indian Airlines, the competition in the skies may get reduced a bit. With its brand name well established in the market, Jet will seek to capitalise on Sahara's leased fleet of aircraft, its prime route permits, and above all the landing and parking rights at various airports — including those in international segments. Though some private domestic airlines have objected to a complete transfer of landing rights and parking bays to Jet Airways, that decision will rest with the Airports Authority of India and the Union Civil Aviation Ministry. What is more, as of now, only Jet and Sahara among the private domestic airlines have been permitted to operate on regional and international routes. In addition to the growing traffic to South East Asia, the United Kingdom, and the United States, this will translate into a major business opportunity when the Gulf routes open up to the merged airline. That business, which is now the monopoly of the two national carriers, will be shared between the two merged entities — Air India and Indian on the one hand, and Jet-Sahara on the other. Jet will now have access to about 85 aircraft, with an opportunity to streamline the operations and reschedule some of the flights that may now operate to competitive timings. The acquisition of Sahara will provide a clear advantage in taking on the growing competition from low-cost airlines.

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