Tags:
Journalism of Courage
Beer baron and Kingfisher Airlines chief Vijay Mallya must be having the last laugh. Eight months ago, after backing out of a plan to buy loss-making Air Sahara, he had predicted: 8216;8216;The returns from Air Sahara do not justify the high price set by Ernst 038; Young the valuer. I wish them Jet luck.8217;8217;
Six months later, with the 500 million Jet Airways-Air Sahara deal in tatters, the landscape has dramatically changed for both airlines8212;and the entire industry. Not only will the two full-service carriers have to deal with a legal slugfest, the aviation industry, still finding its feet, will have to rework many rules, from valuations to funding.
Steep Climb Ahead For Sahara
For now, the spotlight is on Air Sahara, which has a tough task at hand. 8216;8216;It8217;s going to be a big challenge for Air Sahara to revive its operations and find funds to run the business. With its management structure nearly dismantled, the airline could find it difficult to survive in the competitive market,8217;8217; says Nikhil Garg, Edelweiss Capital8217;s aviation analyst. Apart from the big bucks required to re-start the business anything between 100 million and 400 million, depending on who you speak to, the airline has to restaff operations. The carrier also needs to retain its skilled staff like pilots and engineers who has left citing lack of information.
The bottomline: Sahara8217;s market share has already dipped from 12 to 8 and load factors fallen from 78 to 58. 8216;8216;What we will now see is a fight by Air Sahara on retaining its original flight schedules. After the deal, the flight timings of both the airlines were rationalised to avoid competition,8217;8217; an industry watcher said. The airline will now also have to work towards getting all of its aircraft to fly again as 10 of its 27 aircraft are grounded.
Prospect of Legal Spotlight for Jet
The one bit of good news for Air Sahara8212;it got one of its wide-bodied aircraft back from Jet8212;sends a clear signal that Jet Chairman Naresh Goyal is not keen on a protracted fight. Though it is Jet that has walked away to much approval from the financial community, it still has a lot of damage to repair.
The company8217;s share prices had collapsed ever since it signed the jinxed deal with Sahara this January. Jet chairman Naresh Goyal had said how Air Sahara would facilitate his airline8217;s global aspirations. However, these plans have come unstuck. 8216;8216;A lot also depends upon the legal battle with Air Sahara. If they lose the battle, they will lose Rs 500 crore. If they win, then the funds can be used for their aggressive expansion plans,8217;8217; Centre for Asia Pacific Aviations8217; Director Kapil Kaul said.
Industry trackers, however, vouch for Goyal8217;s ability to wriggle out of a tight spot. Though Goyal finally got the Home Ministry clearance he needed to get on the Sahara board, issues remain. Jet continues to have problems with starting its much-awaited flights to the US. It is still waiting for security clearance from the Indian government, which the US government has sought. Domestically, however, a worry could be the increasing politicisation of this event.
Of course, resurgent rivals in the business could use this opportunity to take wing. 8216;8216;Jet has a considerable lead over other carriers, but Goyal will have to guard against a buoyant Kingfisher Airlines. Mallya is very keen on becoming a player in the international routes, his plans of starting a reverse service from the US could hurt Jet,8217;8217; an analyst said.
Turbulence All Around The Industry
The collapse of the deal also means bad news for the industry as other airlines will have problems raising funds. Besides Jet, which has immediate plans of raising money through an foreign currency bonds, there are nearly three major airlines like Air-India, Indian and Kingfisher waiting in the wings to raise capital.
8216;8216;This fallout is likely to have some bearing on the fund-raising plans of airlines. Today, retail investors do not have any confidence in aviation stocks. Not many airline companies will tap the markets till the market stabilises. Lenders would be more watchful and demand a better deal from the airlines,8217;8217; an official of a low-cost carrier said.
On the operational front, of course, this means increased competition for all airlines, including Jet. 8216;8216;I don8217;t think the Jet-Sahara deal would have any bearing on us and neither are we worried if Sahara decides to go low-cost,8217;8217; says Air Deccan managing director Capt G R Gopinath.
Then, analysts disagree that the fallout would have any bearing on the Air India-Indian merger, saying the government initiative can8217;t be compared to a flawed valuation. But remember, the Jet-Sahara deal was the raison d8217;etre behind this plan.
