Mumbai: Jet Airways (India) Ltd will rename Air Sahara as Jetlite and operate it as a wholly-owned subsidiary positioned somewhere in between a low-fare carrier and a full-service carrier, said Jet chairman Naresh Goyal.
Jet last week said it will acquire Sahara Airlines in an all-cash deal worth Rs1,450 crore, consolidating its lead in a market where passengers are growing by 50% annually. “Jetlite means buying a ticket will be lite on your purse,” said Goyal, describing the airline.
Following the acquisition, Jet will have access to Sahara’s infrastructure, such as parking bays and hangars, as well as pilots, technical personnel and flight-despatch facilities at airports.
“As a result, productivity will go up and cost will come down. We will be able to give lower fares to passengers flying on Jetlite than other full- service carriers,” claimed Goyal. “Jetlite will grow a certain market and Jet will grow its own market.”
He anticipated that Jetlite will be profitable in its first year, even though Jet itself is generating losses from operations and also posted a net loss of Rs60.07 crore for the first nine months of fiscal 06-07.
Internationally, most full-service airlines that started low-cost subsidiaries, including giants such as Delta and British Airways, have ended up selling the budget airlines to their rivals or closing them.
Jet will renegotiate with Boeing Co. for 10 planes ordered by Sahara last year that are scheduled to be delivered between 2009 and 2011, Goyal said. Large airline leasing firms say that Jet, with its better and bigger balance sheet, will be able to get better terms for the aeroplanes.
“In the near-to-medium term, the acquisition will strain Jet’s balance sheet as the cost of merging operations will be high,” said Surbhi Chawla, an analyst at Angel Broking Ltd. “Jet will benefit from the deal after two years when it expands international operations.”
Jet will get access to Sahara’s peak-hour landing slots at Delhi, Mumbai and Bangalore airports, where the Directorate General of Civil Aviation, the aviation regulator, has stopped allotting more slots due to congestion.
Jet plans to sell shares worth $400 million (Rs1,680 crore)in the next few months either through an institutional placement or through the private equity route or through a follow-on public offer. “We will finalize the best option shortly,” Jet board member Victoriano Dungca said, adding that Jet would need to re-capitalize Sahara. “The capital of Sahara is depleted or close to being depleted,” Dungca said. Goyal said that Jet will not take over the liability or long-term debt of Sahara. “We will only take over current liabilities such as bank overdrafts,” Goyal said, but declined to give further details. Jet shares closed at Rs632.1 per share on the Bombay Stock Exchange on Monday—up 1% from the previous day’s close—compared with the benchmark 30-stock sensex that rose 2.33%.
The promoters hold 80% of the company currently and a fresh sale of equity worth $400 million at current market prices would amount to diluting almost 32% of its equity by sale to private equity funds.
AFP and Bloomberg contributed to this story.