Jet-Sahara buyout deal in tailspin as both fly to court

Meanwhile, earlier in the day, in a move aimed at blocking Jet Airways from withdrawing money deposited in the escrow account created for the merger, Air Sahara moved the sessions court at Lucknow. It sought that Jet Airways be restrained from withdrawing any money from the escrow account.

The counsel of Air Sahara alleged that Jet Airways had terminated the contract which they had entered and an arbitrator should be appointed since there was a dispute among the two parties. The court has ordered that the account be frozen till June 23.

Air Sahara’s move came soon after Jet filed an arbitration petition before the Bombay High Court, seeking direction to stop Air Sahara and its seven directors from withdrawing Rs 500 crore transferred by it in the escrow account.

While there was no clearance from the Union Home Ministry today for Jet Chairman Naresh Goyal’s candidature on the Air Sahara board, it is learnt that there is an in-principle approval. Clearly, financial reasons—Jet was seeking to lower the acquisition price—are the key factor behind the breakdown in the deal.

Barring the Sahara statement which came late in the evening, both airlines were tightlipped and reluctant to comment on the dramatic denouement of India’s first ever private aviation buyout. As things stand, the Rs 2,300 crore deal reached on January 19, 2006, expires at midnight.

The first major indication of the deal going sour was the reported move by Jet asking all its top-level employees working with Air Sahara to report back to its parent company. While Air Sahara officials said there would be no operational problems with the airline tomorrow morning, the impact of the breakdown in the deal would be known in the morning.

Even though Jet officials have not explicitly stated the reason for pulling out, in their affidavit to the court asking to block Air Sahara’s access to the escrow account, it says Air Sahara had not fulfilled conditions agreed upon, including transfer of infrastructure facilities like parking bays, arrival and departure slots.

Meanwhile, Air Sahara is already preparing itself for life after the deal. Insiders say that the airline is in talks with prospective buyers although Kingfisher airlines chief Vijay Mallya ruled out reviving acquisition plans. There are also indications that the airline could go in for private equity placement.

The Jet Airways stock rose 4 per cent to close at Rs 705.70 in a firm Mumbai market.

Jet’s reluctance to proceed with the acquisition of Air Sahara grew over the past couple of weeks, particularly after Jet found it had to spend over Rs 250 crore to just get Air Sahara functioning in full capacity.

It’s learnt that Jet has been incurring an expenditure of nearly Rs 40 crore a month after it took control of Air Sahara’s operations. This sent calculations awry and prompted a rethink when the due diligence report indicated serious shortcomings in maintenance standards.

Given that Jet is still awaiting a positive response from the government to the US on the latter’s queries over the airline’s funding, sources said, Jet Airways would rather use its energy to ensure its US operations are launched soon.