How Naresh Goyal did a Bargain With Air Sahara and bought at 50% discount.

2. Sidh Vikash Kumar
a r th
Vai t
San sh
Ravi Dixi
c hi Mal
ho tra L uthra
T imsi
Prashant Kumar

3. Important Dates:-
•23/01/2006: Jet-Sahara deal: It is all deal started with Rs. 2300
cr
•13/05/2006: MRTPC tells DG to submit report on Jet-Sahara
deal
•13/04/2007: Air Sahara in Jet Air fold for Rs 1,450 cr
•14/04/2007: Safe landing in the end
•17/04/2007: Air Sahara renamed Jetlite
•21/04/2007: Jet Airways completes Sahara acquisition

4. Acuirer
Target

5. d
• Jet Airways had valued Air Sahara at about 500 million
dollars (Rs2300crores) initially. However, subsequent
negotiations between Jet Airways owner, Mr. Naresh
Goyal and the Air Sahara team settled the deal at 450
million dollars (Rs2100crores). The initial valuation of
Air-Sahara seemed to be very high, given that the
carrier was sitting on Rs 96 lakhs of loss in the just
concluded financial year. This feeling among the
industry analysts were reflected when the Jet Airways
share experienced a sharp decline with the
announcement of the deal. Finally deal was closed on
1450 crore.

6. MOTIVES FOR ACQUISITION
• The merger of Jet and Sahara gave Jet Airways access to the entire
leased fleet of 27 aircrafts of Air Sahara along with its infrastructure
and logistics. It also gave Jet Airways presence in those areas in
India where they were not there but Air Sahara was. Air Sahara
proved to be complementary to Jet even in the international arena.
While Jet was operating on long haul routes such as US and Europe,
Air sahara operated to neighboring countries such as Sri Lanka,
Nepal and Thailand. Jet had about 62 aircrafts and operated 320
flights to 44 domestic destinations and 6 foreign destinations at the
time of the deal.
• One major gain for Jet in the deal was that it could gain access to
Sahara’s parking slots in London’s Heathrow airport as well as in
Delhi and Mumbai. Another factor was that there was a huge
shortage of airline pilots. Hence, it could utilize Air Sahara’s pilots.
The maintenance facilities of the smaller carrier would also be
available within the country.

7. MOTIVES FOR ACQUISITION CONT..
•Since Air Sahara had leased all of its 27 aircrafts, so there was
not much gain in terms of tangible assets especially since Air
Sahara was not transferring its real estate and helicopters.
However when the deal was announced in January 2006, the
plan was to take over all of Air Sahara’s assets for $545 million.
•Jet Airways was also looking at capturing more market share
post the deal. It used to have a 40 percent market share which
fell down to 27 percent at the time of the deal. The major reason
was Jet’s intention of becoming the king of Indian skies by
becoming the number 1 private airlines in the industry

9. i
Strategic Fit
it was a vertical acquisition as, Air Sahara as on 2006 had
a market foothold of 12%, which increases Jet’s market
share to 45%. Air Sahara had a vast parking bays at
important metros, which can be used by Jet to reduce
congestion time and reduce fuel burning up to a large
extent. Air Sahara was mostly servicing the domestic
market (24 domestic and 4 international) and this
increases the domestic share of Jet. Air Sahara had a
fleet strength of 26 which drastically increase Jet’s Fleet
strength, without purchasing any new airplanes.

10. i
Operational Fit
Screening Target Target Company: Air Sahara Operational Fit
The load factor of Jet in its international flights was 73% and in
domestic flights was 72%. Air Sahara had a load factor of 72%
on domestic route and 65% in international flights. So, using
the expertise of Jet, Air Sahara could gain. Sahara had 4
international destination, Jet Airways also had international
flights to those destinations from the same source. So,
efficiency and monopoly could be increased. Air Sahara had
an identical fleet as the Jet’s consisting mostly of B737.
Maintenance in case of was easy and effective. some Analysts
estimate that a cost saving of Rs. 150 crore -200 crore is
achievable due to acquiring of parking bays
.

11. DEAL
• Jet Airways announced its first takeover attempt on
January 19, 2006, offering 2300 crores rupees in
cash for the airline.
• Market reaction to the deal was mixed, with many
analysts suggesting that Jet Airways was paying too
much for Air Sahara.
• The Indian Civil Aviation Ministry gave approval in
principle, but the deal was eventually called off over
disagreements over price and the appointment of Jet
chairman Naresh Goyal to the Air Sahara board.
• Following the failure of the deal, the companies filed
lawsuits seeking damages from each other.

12. i
Target Valuation
•The entire business of Air Sahara was valued at Rs. 2300 by
Jet Airways.
• whereas the valuations by E&Y for Air Sahara was done at
Rs 3382 crores
•The valuation has been made on the comparable value with
respect to the valuations of Jet Airways. Only the assets will be
acquired, liabilities to be borne by Air Sahara itself Nikhil Garg
from Edelweiss Capital said that if Jet Airways pays Rs. 2300
crore to Air Sahara, then Jet would be overpaying by 35%, as
because the valuations of Jet dipped by 35% within months of
deal talks
.

14. i
Target Valuation(Revised)
•Valuations made are comparable with the Jet’s market
valuation. After the talk of deal Jet’s valuation slipped by
around 35%, so the new valuation of Air Sahara was done at
35% lower valuation of Rs. 2300 crore i.e. Rs. 1450 crore
•Rs. 900 crore were paid immidietly but . The balance of INR
550 crores were payable in four interest free annual equal
installments .
•The entire deal was done through debt, majority from IDFC,
the company’s long standing banker.

16. i
Synergy
•cost saving of Rs. 150 crore -200 crore was achieved due to
acquiring of parking bays
•The ticketing costs were reduced for JetLite by moving to web
platform
•Increased customer based helped them reduce cost of
operation
•50% Reduction of staff due to synergies

17. HUMAN RESOURCES RELATED ISSUES
• In case of Staffs integration, Jet Airways was
quick to lead the Air Sahara employees through a
90 day period training.
• Lufthansa Technik team provided support Deal to
absorb any excess employee back to Sahara
Group To avoid Cultural Clashes, Air Sahara was
converted to Jet Lite , having a different
philosophy from its parent, so that a low cost
structure can be developed.

18. HUMAN RESOURCES RELATED ISSUES
(CONT…)
• Reduction of staffs due to synergies was made
close to 50% reduction in headcount for the
entire group.
• Jet was faced with immense criticism and
opposition by various organizations and
political parties Jet’s chairman, Naresh Goyal
reinstated the employees a day later saying he
was not aware of these sackings. So, the HR
integration was not smooth enough.

19. POST MERGER INTEGRATION
• Jet Airways and Air Sahara had an identical fleet
consisting of B737. So, after the merger the Air
Sahara planes were immediately brought into
service.
• Only 20 of the 26 of Sahara are actually flying. So,
Jet infused another Rs. 200 crore for refurbishing
the entire fleet Bulky insurance policies were
removed to short term cost efficient policies.
• Released premises and office spaces not required

20. POST MERGER
INTEGRATION(CONT…)
• 2 CRJs(Canadair regional jet) which has 70 to
100 seater were removed and ATRs(Avione de
transport regional)- Airbus were leased to
reduce maintenance costs of a different
aircraft.
• The ticketing costs were reduced for Jet Lite
by moving to web platform Food and Cabin
Amenities were reduced
• Loss making flights discontinued Business class
services withdrawn.

21. The Joy of Flying….