Air Sahara leaving on a Jet plane, finally

Jet To Take Over Operations For Rs 1,450 Crore Without Warranties And Indemnities

IN A complete volte face to its position in June last year, India’s largest airline by marketshare, Jet Airways, has signed an amended agreement to acquire Air Sahara. The difference between the original share purchase agreement of January 18, 2006 and the amended version is that the enterprise value of the airline has been reduced to Rs 1,450 crore from the earlier figure of Rs 2,250 crore. However, this reduction is at the cost of several changes in the agreement and payments already made by Jet to Sahara. Jet has spent Rs 180 crore for operating Air Sahara over three months. It had also placed Rs 1,500 crore in an escrow account and Rs 51 crore interest on this account has been deducted from the final price. Also, Jet has agreed to acquire Air Sahara on an ‘as is where is’ basis without any warranties and indemnities with respect to the condition of the aircraft, assets or undisclosed liabilities that were part of the earlier agreement. These, along with liabilities, amount to Rs 350 crore, sources close to the deal said. The only indemnity retained is with respect to tax claims that may arise. Counting these, the valuation works out to Rs 1,950 crore, sources said. There has been a 10% reduction in the fleet size compared with last January. Air Sahara will now hand over 24 aircraft to Jet, down from 27 earlier, since three planes have gone back to the lessors. The Jet Airways management has been able to extract a staggered structure for the payment of Rs 550 crore, which will be paid back in installments over four years till 2011. The signing of the deal was announced by Jet Airways chairman Naresh Goyal and counsel Harish Salve in Mumbai after four days of negotiations on the fine print. “Jet still sees value in the deal like it did earlier,” Mr Goyal said. The Jet share price rose 3.2% to close at Rs 628 on Thursday on the BSE. The transaction will be formally closed on April 20, when the two parties meet again. Sahara group shares pledged with Jet will be released, along with bank guarantees. Jet will also make a down payment of Rs 400 crore.

WHAT THE FINAL AGREEMENT LOOKS LIKE

Transaction will be formally closed on April 20. Sahara shares pledged with Jet will then be released, along with bank guarantees

Of the Rs 950 crore remaining, Jet will pay Rs 400 crore on April 20. Rest Rs 550 crore will be paid in instalments over four years

Jet nominees Vijay Kelkar, Javed Akhtar, Victoriano Dungca, Saroj Dutta and Naresh Goyal will be on Air Sahara board

Jet can use the Air Sahara brand for a maximum of six months, after which the rights will revert to Sahara group

Air Sahara board to be reconstituted
THE Air Sahara board will be reconstituted with Jet nominees Vijay Kelkar, Javed Akhtar, Victoriano Dungca, Saroj Dutta and Naresh Goyal stepping in. The home ministry and the DGCA had cleared all the five names last year. Mr Goyal’s name was cleared 12 hours after the deadline for the agreement lapsed. It was one of the factors cited as a reason for Jet not going ahead with the deal then. The two airlines have also signed a trademark agreement in respect to the Air Sahara brand. Jet Airways has the lien to the brand for up to six months, after which the rights revert to the Sahara group. Sources close to Jet Airways said the airline has no intention of using the brand beyond a few months that it takes to take charge of the operations. Air Sahara has an estimated full year turnover of Rs 1,800 crore and losses are estimated in the range of Rs 350 crore to Rs 400 crore. The airline is losing Rs 30-35 crore per month (An outgo Jet will have to face immediately). For the nine months ended December 2006, Jet recorded a loss of Rs 60 crore on sales of Rs 5,179 crore — not counting other income of Rs 333 crore — which means Jet is also losing Rs 35-40 crore per month on operations.

Courtesy: EconomicTimes