Runway Rigours

One shouldn't forget that Sahara Airlines also carries a huge financial baggage and its accumulated losses (2004-05) stood at Rs 145.50 crore. Jet has tried to reduce the burden by refusing to take over a number of Sahara's liabilities. Sources close to the deal reveal that Jet refused to take on Sahara's unsecured loans (from Sahara India Commercial Corporation) of nearly Rs 400 crore, and only agreed to pay off the Rs 27.50 crore loans, largely fromIFCI and Bank of Rajasthan. Goyal also decided against buying the properties owned by Sahara Airlines—and the company's single business jet. Finally, Jet didn't pay for the Sahara brand or the sponsorship rights for the Indian cricket team. So the Indian cricketers will continue to sport the Sahara logo for the next few years. However, one doesn't know the fate of Sahara Airlines' Rs 22.80 crore investment in the shares of a Sahara group company, Sahara TV Ltd (Mauritius).

Several Mumbai-based analysts also feel that it's not going to be easy for Jet to manage the merger transition. Sahara is over-staffed and wasn't run with the same professionalism as Jet. And that's been Jet'sUSP, that it's run efficiently. Jet scores the highest in terms of critical ratios like passenger load factor, aircraft utilisation (or hours flown per day per aircraft) and revenue passenger kms (or number of kms flown by revenue-paying passengers). "But now Jet will have to work on improving Sahara's efficiency overtime," says Kalpesh Parekh, senior analyst, ask Raymond James.

Much has been said about the extra premium parking slots (of Sahara) that Jet will gain at airports like Mumbai. Experts have contended that this will enable Jet to hike its profits as the same aren't available to competitors because of infrastructure bottlenecks. But once the privatisation of Delhi and Mumbai airports is finalised—and this is expected by end-January—the two will be modernised within four years. So Jet is likely to lose this edge by 2010. Also, while the Sahara's slots will boost its topline and bottomline in quantitative terms, margins will continue to be under pressure.

What can change this dynamics is the belief that Sahara Airlines is just a small cog in Goyal's grand hub-and-spoke strategy. The rumour is that Jet is also talking to Air Deccan for a strategic tie-up, one that'll enable the former to become a near-monopoly player in India and also safeguard competition from budget airlines. For one, it'll take Jet-Air Deccan's combined marketshare to over 60 per cent. Two, it'll provide a huge presence for Jet in the low-cost segment where Air Deccan with 22 aircraft enjoys a sizeable marketshare. The combination, says one expert, will make every airlines rethink their business strategies. Adds another expert, "Jet and Sahara along with Air Deccan will have virtually no competition."

All that Jet's Datta says about Air Deccan is that discussions are at a preliminary stage and all that the agreement will encompass will be technical in nature, like using each other's spare parts or technical crew. Publicly, Jet's Goyal has denied any operational or other ownership alliance with Air Deccan. But the mrtpc is keeping a close watch on these developments. According to its head, the commission will investigate any Jet-Air Deccan alliance to see if it creates a monopoly in the aviation sector.

Whatever the future may be, the Jet-Sahara deal has changed the aviation scenario in the country. Of course, it may trigger further consolidation among other airlines. For example, Kingfisher, which was also eyeing Sahara Airlines, could still join hands with Air Deccan. Or one may see a merger among the low-cost carriers to consolidate their marketshares. Or one may witness Jet gobbling the big one—buying Indian in case the national carrier is put on the privatisation block. Rest assured that the excitement isn't over. The Indian aviation sector is just ready for the next take-off stage.