D.Murali

Chennai, April 17: A year ago, Jet Airways and Air Sahara were hot on the M&A radar but soon faded off as minor blips, when the two companies began to walk towards what seemed to be a Byzantine process of dispute resolution.

All of a sudden, the deal happened fast ‘amicably’, like a tricky manoeuvre in mid-air, ahead of final arbitration proceedings. Turbulence is over, one learns; within weeks we should be seeing Jetlite replace the Air Sahara brand. For those who still have their seatbelts on, wondering what happened, here is a bit of decoding of the deal by Mr Amitabh Chakraborty, President (Equity), Religare Securities Ltd.

“The Jet-Sahara deal is a win-win for both the airlines,” he says. “Sahara has relatively old aircrafts, was losing market share. Jet, on the other hand, is losing market share in the premium segment from Kingfisher, in the economy section from the LCC (low-cost carrier).”

Here are Mr Chakraborty’s answers to a few more quick questions from Business Line.

On what Jet gets in the bargain.

By doing this deal, Jet not only got an option to offer a LCC services, JetLite, rolling out relatively faster, Jet got the valuable landing right in busy airports, parking slots, routes, both domestic and internationals that Sahara was enjoying.

On pricing

One can always argue about the pricing, and in our opinion deals such as this never happen in a linear fashion. There are intangibles, benefits that the buyer understands to accrue over a period of time.

On the industry impact

While the deal helps Jet to shore up market share, fight LCC with new service offering, it also would help the industry to consolidate faster. A fight for market share at the cost of profitability, most of the LCCs are bleeding today, harms every one. We see long-term consolidation in the industry and probably this deal will start that trend.

On what Jet should have to do, post-deal

We expect Jet to spend at least Rs 100 crore – Rs 150 crore to upgrade maintenance of Sahara fleet. Jet also will go for new acquisition of fleet. To that effect Jet will raise resources; the promoter might dilute his stake to raise resources.

On the takeaways for investors

Investors need to take a long-term view in the aviation sector. Only the player with market share will survive. In our opinion, Jet will be one of the survivors in the consolidation. Any country with 8-9 per cent GDP growth needs huge investment in the aviation sector. To that effect taking a long-term exposure in the sector is recommended.