Paresh Jatakia and Santanu Choudhury/Bloomberg
Jet Airways (India) Ltd., the nation’s biggest domestic carrier, will find out on 11 April if its revised offer to buy Sahara Airlines Ltd. has been accepted, 10 months after scrapping a Rs22 billion ($513 million) bid.
Jet Airways offered to buy Sahara for Rs14.5 billion. Jet Airways Chairman Naresh Goyal today said he expects a decision by the afternoon of 11 April.
Combining with Sahara to get its airport facilities and pilots ahead of a proposed merger between India’s two government airlines may help Jet cut costs in an industry set to lose $500 million this year.
Growing competition in India is hurting profitability and the purchase may be difficult to implement, wrote Jamshed Dadabhoy, a Citigroup Inc. analyst in Mumbai.
“Timely and effective integration of Air Sahara remains a key risk factor,” Dadabhoy wrote in a report to clients yesterday. He has a ‘sell’ rating on the stock, with a price target of Rs390.
By combining with Sahara, Jet will be able to extend its lead in the domestic market, cut replication in their network and become the only non-government airline to have the rights to fly overseas. India’s government, which doesn’t detail airline market shares, has permitted only Sahara and Jet to fly overseas.
Shares of Jet Airways fell 4.9% to Rs613.25 on the Bombay Stock Exchange. The shares have almost halved since the first takeover offer in January 2006.Still, purchasing Sahara may hurt Jet Airways, Surbhi Chawla, an analyst at Angel Broking Ltd. wrote in a note to clients on 10 April.
“The merger would strain the profitability and the balance sheet of jet Airways in the near to medium term, before the merger can fully realize the benefits arising out of the synergies,” she wrote.
Neeta Raina, a spokeswoman for Sahara, declined to comment on the new offer, and Jet Airways Chief Executive Officer Wolfgang Prock-Schauer also declined to comment on the report. Saroj Datta, Jet Airways’ executive director, didn’t answer calls made to his mobile phone.
Jet Airways is seeking to buy Sahara to add flights and get access to more parking bays and landing slots at the nation’s busiest airports. It offered to buy New Delhi-based Sahara in an all-cash deal in January last year. The 14-year-old carrier withdrew the offer in June, saying some conditions preceding the merger weren’t met.
Since then, Sahara’s market share has halved to 7% as Deccan Aviation Ltd., India’s biggest low-fare airline, and other carriers flew more passengers.“I don’t think it’s a wise decision to buy Air Sahara as their market share is now down,” said Kapil Kaul, chief executive officer of the India unit of the Centre for Asia Pacific Aviation. Kaul was earlier an employee in Sahara Airlines.