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History

Indian Aviation Industry is one of the fastest growing airline


industries in the world. The history of Indian Aviation Industry
started in December 1912 with its first domestic air route between
Karachi and Delhi. It was opened by the Indian Air Services in
collaboration with the UK based Imperial Airways as an extension of
London-Karachi flight of the Imperial Airways. Tata Sons Ltd., the
first Indian airline, started a regular airmail service between Karachi
and Madras three years later without any backing from the Indian
government.


During the period of independence, 9 air transport companies were carrying both air cargo and passengers in the
Indian Territory. In 1948, the Indian Government and Air India set up a joint sector company, Air India International
to further strengthen the Aviation Industry of India. As part of nationalization in 1953 of Indian Airlines (IA)
brought the domestic civil aviation sector under the purview of Indian Government. Later till the mid 1990's
government-owned airlines dominated Indian aviation industry. When the government adopted the Open-sky policy
in 1990 and other liberalization policies the Indian Aviation Indian made underwent a rapid and dramatic
transformation.
By the year 2000 several private airlines have entered into the aviation business in succession and many more were
about to enter into the arena. Indian aviation industry today is dominated by private airlines and low-cost carriers
like Deccan Airlines, GoAir, and SpiceJet, etc. And Indian Airlines, the giant of Indian air travel industry, gradually
lost its market share to these private airlines. According to the report of CAPA, these budget carriers are likely to
double their marketshare by 2010 -- one of the highest in the world.








Size of theIndustry
There are about 450 airports and 1091
registered aircrafts in India Today.
Geographicaldistribution
Mumbai, Kolkata, Hyderabad, Delhi,
Pune, Bangalore, Chennai.
Output per annum Growth rate of 18% per annum
Timeline









1912: Indian
State Air
service and
Imperial
Airways, UK
collaborate to
ply on first
domestic
route,
between Delhi
and Karachi.
1915: Tata
Sons start
airmail service
between Delhi
and Madras.
1932: Tata
Aviations
established. It
goes to
Colombo in
1938.
1948:
Designated as
flag carrier
under the
name Air India
International
with 49% govt.
control.

1953: Indian
Airlines
Corporation
formed
through Air
Corporation
Act, 1953, by
nationalizing
Air India and
Indian National
Airways.
1994: Air
Corporation
Act. 1953
repealed and
thus allowed
private players
to come.
2003: Entry of
low cost
carriers. Air
Deccan, Spice
Jet, Go Air,
Indigo.
Major Milestone

1953 Nationalization of all private airlines through Air Corporations Act;
1986 Private players permitted to operate as air taxi operators
2001 Aviation Turbine Fuel (ATF) prices decontrolled
2003 Air Deccan starts operations as Indias first LCC
2005 Kingfisher, SpiceJet, Indigo, Go Air, Paramount start operations
2007 Industry consolidates; Jet acquired Sahara; Kingfisher acquired Air Deccan
2010 SpiceJet starts international operations
2012 Government allows direct ATF imports, FDI proposal for allowing foreign carriers
to pick up to 49% stake under consideration








Introduction
Indian Aviation Industry has been one of the fastest-growing aviation industries in the world with private airlines
accounting for more than 75 % of the sector of the domestic aviation market. With a compound annual growth rate
(CAGR) of 18 % and 454 airports and airstrips in place in the country, of which 16 are designated as international
airports, it has been stated that the aviation sector will witness revival by 2011.
In 2009 with increase in traffic movement and increase in revenues by almost US$ 21.4 million, the Airports
Authority of India seems set to accrue better margins in 2009-10, as per the latest estimates released by the Ministry
of Civil Aviation.

This is being primarily attributed because of the increase in the share
of revenue from Delhi International Airport Limited (DIAL) and
Mumbai International Airport Limited (MIAL). Passengers carried
by Indian domestic airlines from January-February 2010 stood at
8,056,000 as against 6,761,000 in the corresponding period of 2009-
a growth of 19.2 %, according to a report released by the Ministry of
Civil Aviation.
Today Hyderabad International Airport has been ranked amongst the world's top five in the annual Airport Service
Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. This airport in
Hyderabad is managed by a public-private joint venture consisting of the GMR Group, Malaysia Airports Holdings
Berhad and both the State Government of Andhra Pradesh and the Airports Authority of India (AAI).






Classification of Indian Aviation sector
The Indian airline sector can be broadly divided into the following main categories:
1. Scheduled air transport service, which includes domestic and international airlines.
2. Non-scheduled air transport service, which includes charter operators and air taxi operators.
3. Air cargo service, which includes air transportation of cargo and mail.
Scheduled air transport service: It is an air transport service undertaken between two or more
places and operated according to a published timetable. It includes:
1. Domestic airlines, which provide scheduled flights within India and to select international
destinations. Air Deccan, Spice Jet, Kingfisher Airline and IndiGo are some of the domestic
players in the industry.
2. International airlines, which operate scheduled international air services to and from India.
Non-scheduled air transport service: It is an air transport service other than the scheduled one
and may be on charter basis and/or non-scheduled basis. The operator is not permitted to publish
time schedule and issue tickets to passengers.
Air cargo services: It is an air transportation of cargo and mail. It may be on scheduled or non-
scheduled basis. These operations are to destinations within India. For operation outside India,
the operator has to take specific permission of Directorate General of Civil Aviation
demonstrating his capacity for conducting such an operation.
At present, there are 2 scheduled private airlines (Jet Airways and Air Sahara), which provide
regular domestic air services along with Indian Airlines. In addition there are 47 non-scheduled
operators providing air-taxi/non-scheduled air transport services.

Major Players

Air India

Jet Airways

Jet Lite

Spicejet

Go Air

IndiGo






Market Size
India is one of the fastest growing aviation markets in the world. A total of 127 airports in the
country, which include 13 international airports, 7 custom airports, 80 domestic airports and 28
civil enclaves are managed by The Airport Authority of India (AAI). There are about 450
airports and 1091 registered aircrafts in India today.
Total domestic passengers carried by the scheduled domestic airlines between January and
May 2013 were 25.998 million, as against 25.808 million during the corresponding period of
previous year thereby registering a growth of 0.74 per cent, revealed the statistics from
Directorate General of Civil Aviation (DGCA).
No-frill carrier IndiGo lead in terms of market share with 29.7 per cent of the pie, followed by
Jet Airways-Jet Lite combine at 25.3 per cent, Air India Domestic at 19.2 per cent, Spice Jet at
17.5 per cent, and Go Air at 8.3 per cent for the month of July 2013.
The air transport (including air freight) in India has attracted foreign direct investment (FDI)
worth US$ 456.84 million from April 2000 to July 2013, as per the data released by Department
of Industrial Policy and Promotion (DIPP).











Industry Statistics
MARKET SHARE OF SCHEDULED DOMESTIC AIRLINES


CAPACITY VS DEMAND

PASSENGER LOAD FACTOR OF SCHEDULED DOMESTIC AIRLINES







Low-cost model now dominating the skies; viability remains to be seen
Internationally the LCC model came into existence when the US Congress passed the Airline
Deregulation Act in 1978 easing the entry of new companies into the business and giving them
freedom to set their own fares and choose routes (Prior to this routes and fares were fixed by a
Government Agency). This was followed by entry of carriers like Southwest, which pioneered
the LCC concept. Majority (~60-65%) of an airline cost are dependent on external factors, which
cant be managed by an LCC. This includes the fuel cost (~40%), maintenance cost (~12%) and
ownership cost (~12-15%). LCCs try to achieve a cost advantage in other ways by avoiding the
in-flight services, operating from secondary airports, selling tickets through the internet, higher
number of seats in the aircraft, inventory reduction through use of similar aircraft and lower
employees per aircraft.
The Indian aviation sector was exposed to intense competition with the advent of a low-cost
airline - Air Deccan back in 2003. The success of Air Deccan spurred the entry of other LCCs
like SpiceJet, Indigo, Go Air and subsequently low fare offerings from Jet airways and
Kingfisher airlines. As a result, the sector which was completely dominated by full-service
airlines till a decade ago is now dominated by low-cost airlines. However, longer term viability
of LCCs models in India remains to be seen (Kingfisher exited the segment recently) as airport
charges are same for FSCs and LCCs in India. Besides, the fuel costs forms a larger proportion
of overall costs as compared to international standards due to higher central and state
government levies (viability of direct ATF imports remains to be seen due to lack of supporting
infrastructure) and high congestion at major airports (half an hour hovering at major airport
could increase fuel costs by Rs.60,000 to Rs. 115,000 depending on aircraft, besides impacting
aircraft utilizations). These constraint can be resolved only if there significant improvement in
infrastructure such that LCCs could operate on secondary airports.

Sales Growth: After a strong rebound in 2010, the pax growth has been moderating over the last
few quarters due to moderating economic growth and weak industrial activity. Besides, severe
competitive pressure from domestic LCC players (rapidly gaining market share) and Air India
(trying to maintain market share) have resulted in price wars (at times below cost pricing),
lowered yields and moderated sales growth for the airlines. Even on international routes, the
yields have remained weak due to weaker economic conditions and severe competition from
global airlines.

Rising ATF Prices & Steep Rupee Depreciation: The airlines industry had been severely
impacted by the significant increase in ATF prices (up 57% in last 18 months) as Indian Carriers
do not hedge fuel prices and have exhibited limited ability to charge fuel surcharges due to
irrational and undisciplined pricing dictated by competition rather than costs / demand. Besides,
the steep rupee depreciation (~18.7% depreciation in CY11, although partly reversed through
7.3% YTD appreciation in CY12) acts double whammy as apart from fuel costs, substantial
portion of other operating costs like lease rentals, maintenance, expat salaries and a portion of
sales commissions are USD-linked or USD-denominated

Profit Margins: With combined impact of 1) moderating pax growth 2) lower yields due to
excessive competitive 3) rising ATF prices 4) steep rupee depreciation and 5) rising debt levels
and interest costs, the profitability margins of the airlines industry have been severely impacted.
As per Centre for Asia Pacific Aviation (CAPA), Indian carriers could be posting staggering
losses of $2.5 billion (~Rs 12,500 crore) in 2011-12, worse than the losses of 2008-09 when
traffic was declining and crude oil prices spiked to $150 per barrel.











Revenue & Income







FY2012 Revenue FY2012 Net Income FY2013 Revenue FY2013 Net Income
Air India USD2.6 bn (USD1.4 bn) USD3.0 bn (USD950 mn)
GoAir USD278 mn (USD24 mn) USD375-400 mn (USD14-16 mn)
IndiGo USD1.0 bn USD23 mn USD1.5-1.6 bn USD100-110 mn
Jet Airways USD2.7 bn (USD226 mn) USD3.0bn (USD87 mn)
Jet Konnect USD340 mn (USD33 mn) USD387 mn (USD53 mn)
Kingfisher USD1.0 bn (USD423 mn) USD91 mn (USD500-520+ mn)
SpiceJet USD720 mn (USD109 mn) USD1.0 bn) (USD34 mn)
Growth of Indian Passenger Traffic


















The results of the October survey show that a majority of respondents expect to see
improvements in profitability over the next 12 months. The positive outlook has been broadly
stable since the April survey, with anywhere from 63% to 73% of respondents expecting profits
to improve over the coming 12 months.

Q3 compared to the year ago period. More than 63% of respondents indicated an improvement,
and the proportion of respondents experiencing a fall in Q3 profits slipped from almost 29% in
July to 20% in October. Consolidation and efficiency gains have helped airlines in some regions
increase profits in the first half of 2013. These improvements appear to be continuing into Q3 as
well as supporting the optimistic outlook for airline financial performance for the year ahead.



Profitability Outlook





Traffic volumes in the passenger business increased during Q3 2013, according to survey
responses about the past three months. The rate of improvement in October increased compared
to the July survey - the proportion of respondents reporting increased growth in air travel rose
from 57% in July to 77% in October.

The outlook for the year ahead has also improved. The proportion of survey respondents
expecting a rise in traffic volumes is a significant 83%, well above the share in July (62%).

These developments are consistent with improvements in key demand drivers over recent
months, with increases in business confidence and exports orders suggesting a more supportive
demand environment for air transport in the months ahead.

The results for cargo are also positive and consistent with these developments. While the
improvement is not at the same pace as those indicated for the passenger business, there was an
increase in positive responses both with respect to the recent past performance and the outlook.
Over the past three months, 52% of respondents reported seeing stronger traffic growth, up from
Demand Growth
45% in July. The outlook also improved slightly in October compared to July, due to a small rise
in both those expecting no change and a pick-up in the year ahead.






Survey respondents indicated a decline in input costs during Q3. Although the price of jet fuel
started to increase again in July, after decline in Q2, prices in Q3 were still below those seen
during the same period last year. But probably more importantly than developments in jet fuel
prices, survey respondents pointed to cost cutting initiatives as reasons for the fall in input costs
in Q3.

respondents (17%) expecting a rise in inputs costs over the next 12 months compared to July
when that proportion was 24%. On balance, survey respondents now expect input costs to
decline over the next 12 months.

Input Cost




The October survey results suggest that passenger yields picked up in Q3 2013, after remaining
stable in Q2 (as indicated by the July survey). 41% of respondents said yields increased during
Q3, an improvement on the July result of 31%. The outlook also improved, with growth in yields
now expected for the year ahead.

declined in Q3. Although the proportion of respondents seeing an increase over the past three
months improved slightly in October (23%) compared to July (21%), the share of respondents
seeing a decline in cargo yields doubled to 42% in October. Importantly, however, the outlook
has improved slightly CFOs and cargo heads expect yields to rise over the next 12 months.



Yield Environment
Employment



Recent past and future expectations for employment in the airline industry have increased
according to the October survey results, a solid improvement on 2012 when CFOs and cargo
heads were indicating declines in employment. The increase in airline employment activity
during the past three months is consistent with the improvement in financial performance. The
trend is expected to continue in the year ahead.

outlook fell by 10% points in October compared to July, with a majority (on balance) of the
survey group now indicating growth employment.





Challenges Face by Aviation Sector

Employee shortage:- There is a shortage of trained and skilled manpower in the aviation industry. As a consequence, there
is cut-throat competition for hiring employees, which, in turn, is driving wages to unsustainable levels. Moreover, the industry is
unable to retain talented employees.

Regional connectivity:- One of the biggest challenges facing the aviation industry in India is to provide regional
connectivity. The lack of airports is hampering regional connectivity.

Rising fuel prices:- As fuel prices have climbed up, the inverse relationship between fuel prices and airline stock prices has
been demonstrated. Moreover, the rising fuel prices have led to an increase in the air fares.

Declining yields:- Low-cost carriers (LCCs) and other entrants together now command a market share of around 46 per cent.
Legacy carriers are being forced to match LCC fares, in the times of escalating costs. Increasing growth prospects have attracted
and are likely to attract more players, which will lead to more competition. All this has resulted in lower returns for all operators.

Gaps in infrastructure:- Airport and air traffic control (ATC) infrastructure is inadequate to support growth. While a start
has been made to upgrade the infrastructure, the results will be visible only after two-three years.

Trunk routes:- At present, trunk routes are not fully exploited. One of the reasons for inability to realise the full potential of
trunk routes is the lack of genuine competition. The entry of new players would ensure that air fares are brought to realistic
levels, as it will lead to better cost and revenue management, increased productivity and better services. This, in turn, would
stimulate demand and lead to growth.

High input costs:- The input costs are also high. Some of the reasons for high input costs are withholding tax on interest
repayments on foreign currency loans for aircraft acquisition and increasing manpower costs due to shortage of technical
personnel.









SWOT ANALYSIS















PEST Analysis
A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T.
is an acronym for the Political, Economic, Social, and Technological factors of the external
macro-environment. Such external factors usually are beyond the firm's control and sometimes
present themselves as threats. For this reason, some say that "pest" is an appropriate term for
these factors. Let us look at the PEST analysis of the Indian aviation sector:

Political Factors
In India, one can never over-look the political factors which influence each and every
industry existing in the country. Like it or not, the political interference has to be present
everywhere. Given below are a few of the political factors with respect to the airline industry:
The airline industry is very susceptible to changes in the political environment as it has a great
bearing on the travel habits of its customers. An unstable political environment causes
uncertainty in the minds of the air travellers, regarding travelling to a particular country.
Overall Indias recent political environment has been largely unstable due to international events
& continued tension with Pakistan. The Gujarat riots & the governments inability to control the
situation have also led to an increase in the instability of the political arena.

The most significant political event however has been September 11. The events occurring on
September had special significance for the airline industry since airplanes were involved. The
immediate results were a huge drop in air traffic due to safety & security concerns of the people.
International airlines are greatly affected by trade relations that their country has with others.
Unless governments of the two countries trade with each other, there could be restrictions of
flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India)
Another aspect is that in countries with high corruption levels like India, bribes have to be paid
for every permit & license required. Therefore constant liasoning with the minister & other
government official is necessary. The state owned airlines suffer the maximum from this
problem. These airlines have to make several special considerations with respect to selection of
routes, free seats to ministers, etc which a privately owned airline need not do. The state owned
airlines also suffers from archaic laws applying only to them such as the retirement age of the
pursers & hostesses, the labour regulations which make the management less flexible in taking
decision due to the presence of a strong union, & the heavy control &interference of the
government. This affects the quality of the service delivery & therefore these airlines have to
think of innovative service marketing ideas to circumvent their problems & compete with the
private operators.

Economic Factors
Business cycles have a wide reaching impact on the airline industry. During recession,
airline is considered a luxury & therefore spending on air travel is cut which leads to reduce
prices. During prosperity phase people indulge themselves in travel & prices increase.
After the September 11 incidents, the world economy plunged into global recession due to the
depressed sentiment of consumers. In India, even a company like Citibank was forced to cut
costs to increase profits for which even the top level managers were given first class railway
tickets instead of plane tickets.
The loss of income for airlines led to higher operational costs not only due to low demand but
also due to higher insurance costs, which increased after the WTC bombing. This prompted the
industry to lay off employees, which further fuelled the recession as spending decreased due to
the rise in unemployment.
Even the SARS outbreak in the Far East was a major cause for slump in the airline industry.
Even the Indian carriers like Air India was deeply affected as many flights were cancelled due to
internal (employee relations) as well as external problems, which has been discussed later.



Social Factors
The changing travel habits of people have very wide implications for the airline industry.
In a country like India, there are people from varied income groups. The airlines have to
recognize these individuals and should serve them accordingly. Air India needs to focus on their
clientele which are mostly low income clients & their habits in order to keep them satisfied. The
destination, kind of food etc all has to be chosen carefully in accordance with the tastes of their
major clientele.
Especially, since India is a land of extremes there are people from various religions and castes
and every individual travelling by the airline would expect customization to the greatest possible
extent. For e.g. A Jain would be satisfied with the service only if he is served jain food and it
should be kept in mind that the customers next to him are also Jain or at least vegetarian.
Another good example would be the case of South West Airlines which occupies a solid
position in the minds of the US air travelers as a reliable and convenient, fun, low fare, and no
frills airline. The major element of its success was the augmented marketing mix which it used
very effectively. What South West did was it made the environment inside the plane very
consumer friendly. The crew neither has any uniform nor does it serve any lavish foods, which
indirectly reduces the costs and makes the consumers feel comfortable.

Technological Factors
The increasing use of the Internet has provided many opportunities to airlines. For e.g. Air
Sahara has introduced a service, through the internet wherein the unoccupied seats are auctioned
one week prior to the departure.
Air India also provides many internet based services to its customer such as online ticket
booking, updated flight information & handling of customer complaints. USTDA (US trade &
development association) is funding a feasibility study and workshops for the Airports Authority
of India as part of a long-term effort to promote Indian aviation infrastructure. The Authority is
developing modern communication, navigation, surveillance, and air traffic management systems
for India's aviation sector that will help the country meet the expected growth and demand for air
passenger and cargo service over the next decade.
A proposal for restructuring the existing airports at Delhi, Mumbai, Chennai and Kolkata
through long-term lease to make them world class is under consideration. This will help in
attracting investments in improving the infrastructure and services at these airports. Setting up of
new international airports at Bangalore, Hyderabad and Goa with private sector participation is
also envisaged.
A good example of the impact of technology would be that of AAI, wherein with the help of
technology it has converted its obsolete and unused hangars into profit centers. AAI is now
leasing these hangars to international airlines and is earning huge profits out of it. AAI has also
tried to utilize space that was previously wasted installing a lamination machine to laminate the
luggage of travelers. This activity earns AAI a lot of revenue.
These technological changes in the environment have an impact on Air India as well. Better
airport infrastructure, means better handling of airplanes, which can help reduce maintenance
cost. It also facilitates more flights to such destinations.











FIVE PRODUCT LEVELS

The Core Service:
The core service of the airlines industry is to transport goods and services to various destinations.
As the needs of the people increased the entire system became more organized and formal. After
this stage comes the various supplementary services.

The Supplementary Services:
The airline industry has many players they had a brand name like Air India, Jet Airways,
British Airways. All of them had some common services to offer like connecting flights,
through check-in, tele check in, food on board, and complementary gifts etc.
Different classes like economy class, business class were introduced. Air concessions are given
to school students, old people etc. Singapore airlines were the first to introduce small 8
television screen for every passenger. The freebies are actually win-win deals between airlines
and other services.
Sahara, for example, offers its passengers a business-plan on two-way economy class ticket,
which includes a nights stay with breakfast, STD facility for 3 minutes and boardroom facility at
the Park Hotel, New Delhi. To Delhi based fliers to Mumbai, it offers a nights stay with
breakfast, airport transfers and VIP amenities at The Orchid, Mumbai. For business class, the
plan includes a stay at The Leela, with buffet breakfast and late checkout.
All these added service helps the customer to decide upon which airlines he wants to travel. As
competition increased and the customers wanted more the next phase evolved and that is the
augmented service.


The Augmented Service:
This phase is where the customers expectations are met; the service providers kept working on
new methods to meet the ever-changing customers demands. The players introduced online
booking, which was very convenient for the service users.
British Airways business class has showers; its more spacious and comfortable. Sahara airlines
offer its passengers six different types of cuisine like vegetarian, fat free, diabetic etc. They also
have auction going on board. Virgin airlines have gambling on board, they also have body
massage to offer to their passengers. Air Emirates has something called cab service, they have
customized pick up and drop cab service.
This phase is the most crucial one; with increased competition service will become the final
differentiation.

Future Service:
As mentioned above the customer needs keep changing, the future is unknown. The customers
may be looking in for more frequent inexpensive air travel, something like air taxis, supersonic
speed. This decreases the time thus reducing the cost.





















Regulations governing M&A in India
Before going into the issues pertaining to M&A of airlines, we will first have a look at the
current policy framework for M&A in India. Regulations governing M&A in India may be
divided in to the following categories:

1. National M&A transactions
Companies Act, 1956.
Companies Court Rules, 1959.
Income Tax Act, 1961.
Central Sale Tax Act, 1956.
Indian Stamp Act, 1899
Competition Act, 2002 (It has been enacted but is not yet fully enforced)

2. M&A transactions involving listed companies
o The Securities and Exchange Board of India (SEBI) Regulations
o The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
o The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
o Listing Agreements

3. International M&A Transactions
Foreign Exchange Management Act, 1999
Airlines Mergers & Acquisitions

Airline M&A are on the rise across the globe. These M&A are highly strategic involving several
considerations. Airline M&A bear serious implications for travellers as well as airline
employees.
The airlines industry is abuzz with news of M&A. In the last few years airline M&A have
been a growing trend in several countries across the globe. However, M&A in the aviation
industry are highly strategic in nature and are undertaken after taking into consideration several
important factors.

1. MERGERS AND ACQUISITIONS IN INDIAN CIVIL AVIATION
Mergers and acquisitions in the Indian civil aviation dates back to the 1950s when the
government of India through the air corporations act 1953 nationalized all airline industry to
form Air India and Indian airlines. Tata Airlines became Air India and former freedom domestic
airlines, Deccan Airways, Airways India, Bharat Airways, Himalayan Aviation, Kalinga
Airlines, Indian National Airways and Air Services of India, were merged to form the new
domestic national carrier Indian airlines.
In the 1990s after the economic liberalization many private airlines sprang up and competition
also increased. The biggest merger year in the Indian aviation industry was 2007 where 6 of the
major airlines of India merged into three. Each airline had its own reason for merger which is
discussed below.

2. MERGER BETWEEN JET AIRWAYS AND AIR SAHARA
Jet Airways, which commenced operations on May 5, 1993, has within a short span of 14 years
established its position as a market leader. The airline has had the distinction of being repeatedly
adjudged India's 'Best Domestic Airline' and has won several national and international awards.
Jet Airways currently operates more than 365 flights daily with a fleet of 80 aircraft, which
includes 10 Boeing 777-300 ER aircraft, 8 Airbus A330-200 aircraft, 53 classic and next
generation Boeing 737-400/700/800/900 aircraft and 9 modern ATR 72-500 turboprop aircraft.
With an average fleet age of 4.3 years, it is the operator of the youngest aircraft fleet in Asia.
Air Sahara was established on 20 September 1991 and began operations on 3 December 1993
with two Boeing 737-200 aircraft as Sahara Airlines. Initially services were primarily
concentrated in the northern sectors of India, keeping Delhi as its base, and then operations were
extended to cover all the country. Sahara Airlines was rebranded as Air Sahara on 2 October
2000, although Sahara Airlines remains the carrier's registered name. On 22 March 2004 it
became an international carrier with the start of flights from Chennai to Colombo.
Jet Airways announced its first takeover attempt on 19 January 2006, offering US$500 million
(2000 crore rupees) in cash for the airline. Market reaction to the deal was mixed, with many
analysts suggesting that Jet Airways was paying too much for Air Sahara. The Indian Civil
Aviation Ministry gave approval in principle, but the deal was eventually called off over
disagreements over price and the appointment of Jet chairman Naresh Goyal to the Air Sahara
board. Following the failure of the deal, the companies filed lawsuits seeking damages from each
other. A second, eventually successful attempt was made on 12 April 2007 with Jet Airways
agreeing to pay 1,450 crore ($340 million). The deal gave Jet a combined domestic market
share of about 32%. On 16 April Jet Airways announced that Air Sahara will be renamed as
JetLite. The takeover was officially completed on 20 April, when Jet Airways paid 400 crore.
The deal would give Jet more than 32 per cent share of the domestic aviation market at that time
and add at least 27 aircraft to its 62-aircraft fleet, in addition to prime landing and take-off slots
at major airports such as London Heathrow, New Delhi and Mumbai. It would become the only
privately owned Indian airline with permission to fly overseas. More than in the capital or asset
value, it is in the entrepreneurial advantages and the rights Air Sahara holds in the various
domestic sectors and airports, as well as the license to fly a few international routes, that was
where its true value lie. Although others in the aviation industry, including rival Kingfisher,
were also interested in the acquisition, the price tag apparently kept them out. Jet Airways has
taken its own time to work out the deal, under which it says it will not take on the liabilities of
Sahara. The deal has distinct advantages for both the parties it can make Jet the major player
in the domestic sector, with a market share of about 32 per cent in traffic, and bale Air Sahara
out of its mounting liabilities. Going by market reports, much of the amount would go towards
settlements of dues and debts. Further, the deal marks the first major step towards consolidation
in the Indian aviation industry which has witnessed unplanned and unbridled growth over the
past few years. The two airlines were among the first to enter the field when it was opened to the
private sector. This combination was expected to dominate the Indian airline market for the near
term as Jet will have a larger scale and scope than any other Indian carrier. It was expected to
help Jets new business model to align market shifts with products (network, aircraft size, and
frequency), cost structure and financial resources. It also helped to leverage its domestic size to
develop a stronger international presence. Moreover, in international operations, Jet had bought
time, by reducing competition, to put its house in order. Another important benefit that Jet
Airways derived from the acquisition of Sahara Airlines was that their order for the additional 10
B737NG aircraft which were scheduled for delivery between June 2009 and August 2011
thereby enabled Jet Airways to have access to additional aircraft to expand its fleet. This
represented substantial additional intangible assets for Jet Airways since it had no aircraft on
order and delivery positions were not available before 2011 or only available at a premium.
2.1 CRITICAL ANALYSIS
As per the Centre for Asia Pacific Aviation, the acquisition of Air Sahara by Jet Airways was
maybe the carriers first major strategic error. Allowing Sahara to exit from the market would
have resulted in a market correction that would have been to the benefit of all players. Jet
incurred a high acquisition price and has been funding operating losses ever since. The process
of integration has been difficult and costly and continues to negatively impact Jet Airways. It is
reported that Jet Airways has yet to settle the full purchase price for the carrier, reflecting the
state of its financial situation. Jet Airways bottom line has been further impacted by an
aggressive international expansion which stretched the carriers resources and damaged investor
confidence. The airline has since been forced to cut a number of existing routes and halt new
services as it consolidates its overseas network. To address the overcapacity in its long haul fleet,
Jet Airways has leased a number of wide body aircraft to Gulf Air and Oman Air.
3. MERGER BETWEEN AIR INDIA AND INDIAN AIRLINES
The government of India on 1 march 2007 approved the merger of Air India and Indian airlines.
Consequent to the above a new company called national aviation company of India limited was
incorporated under the companies act 1956 on 30 march 2007 with its registered office at new
Delhi. The merger of the two airlines would enable them to leverage their combined assets and
capital better and build a strong and sustainable business. The potential synergies were expected
to enhance the new combined airlines profitability by over US$133 million per annum, or about
four per cent, of their current combined assets. By 2010-11, when all the new aircraft ordered by
the two carriers are inducted into the fleet, the merged entitys employee-aircraft ratio would
come be about 200:1, comparable with any major global airline. While Air-India has ordered 68
Boeing planes, Indian has finalized the acquisition of 43 Airbus aircraft. According to the report
submitted by Accenture, there will be no manpower rationalization as the consultancy has
suggested careful integration of manpower at various levels. It has also suggested a top-to
bottom integration of the employees. It is proposed that the pay-scales be revised to bring parity
in promotion procedures.
The aim of the merger was to
Create the largest airline in India and comparable to other airlines in Asia. The merger
between the two state-run carriers will see the beginning of the process of consolidation
in the Indian aviation space - the fastest growing in the world followed by China,
Indonesia and Thailand.
Provide an Integrated international/ domestic footprint which will significantly enhance
customer proposition and allow easy entry into one of the three global airline alliances,
mostly Star Alliance with global consortium of 21 airlines.
Enable optimal utilization of existing resources through improvement in load factors and
yields on commonly serviced routes as well as deploy freed up aircraft capacity on
alternate routes. The merger had created a mega company with combined revenue of Rs
150 billion ($3.7billion) and an estimated fleet size of 150. It had a diverse mix of aircraft
for short and long haul resulting in better fleet utilization.
Provide an opportunity to fully leverage strong assets, capabilities and infrastructure.
Provide an opportunity to leverage skilled and experienced manpower available with both
the Transferor Companies to the optimum potential.
Provide a larger and growth oriented company for the people and the same shall be in
larger public interest.
Potential to launch high growth & profitability businesses (Ground Handling Services,
Maintenance Repair and Overhaul etc.)
Provide maximum flexibility to achieve financial and capital restructuring through
revaluation of assets.
Provide an increased thrust and focus on airline support businesses.
Economies of scale enabled routes rationalization and elimination of route duplication.
This resulted in a saving of Rs1.86 billion, ($0.04 billion) and the new airlines will be
offering more competitive fares, flying seven different types of aircraft and thus being
more versatile and utilizing assets like real estate, human resources and aircraft better.
However the merger had also brought close to $10 billion (Rs 440 billion) of debt.
The new entity was in a better position to bargain while buying fuel, spares and other
materials. There were also major operational benefits as between the two they occupied a
large number of parking bays and hangers, facilities which were usually in acute short
supply, at several large airports in the country. This worked out to be a major advantage
to plan new flights at most convenient times.
Traffic rights - The protectionism enjoyed by the national carriers with regard to the
traffic right entitlements is likely to continue even after the merger. This will ensure that
the merged Airlines will have enough scope for continued expansion, necessitated due to
their combined fleet strength. The protectionism on traffic rights have another angle,
which is aimed at ensuring higher intrinsic value , since the Government is likely to
divest certain percentage of its holding in the near future.
4. POST MERGER SCENAREO

NACIL's employee-to-aircraft ratio, a gauge of efficiency, is the highest among its
peers at 222:1 (the global average is 150:1), resulting in a surplus employee strength of
almost 10,000. The wage bill of the merged company, which was 23 per cent of total
expenditure at the time of incorporation, is expected to rise sharply due to a grade re-
alignment.
Fleet Expansion NACIL's fleet expansion seems out of sync with the times, as most
airlines are actually rounding their fleet and cancelling orders for new planes. While other
Indian airlines have withdrawn over a third of their aircraft orders slated for delivery in
2009, NACIL plans to induct 30 aircraft in this fiscal and another 45 by March-end 2012.
This means NACIL would face a wall of debt going forward.
Mutual Distrust and strong unions The distrust between the two sides of Air India and
Indian Airlines is almost palpable. For sure, many jobs will become redundant when
functions are unified. Many of those appointed are from Indian Airlines, fuelling
resentment among Air India employees. Integration has become a tightrope walk for the
management. Strong opposition from unions against managements cost-cutting decisions
through their salaries have led to strikes by the employees.
Increased Competition The flux at the top has led to delays in decision-making at a time
when demand for air travel has dropped around 8-10% over the last year and competition
has heated up in the sector. The national carriers domestic market share has been under
pressure ever since budget carriers and new private airlines took wing. Air Indias
domestic market share dropped from 19.8% in August 2007, when the merger took place,
to 13.9% in January 2008 before rising to 17.2% in February 2009.
Lower load factor Though the overall operating performance has been steady, Air India
passenger load factor of 63.2%, which was the companys record, lags the industry
average of 75% in 2006-07.The load factor difference is even greater when compared to
other low fares carriers such as Air Deccan. The companys load factor is decreasing year
by year, in 2005- 06 load factor is 66.2% which is more than present load factor. Air
India load factor is likely to be low because of the much higher frequency operated on
each route. Lower load factor could decrease the companys margins.
4.1. CRITICAL ANALYSIS:
The merger between Air India and Indian Airlines made perfect sense on paper for over a
decade. Their complementary networks, common ownership and need to generate greater
efficiencies all pointed to the benefits of a merged entity. As it was, the merger coincided with a
flurry of increased domestic and international competition, placing great pressure on
management. Successful implementation required robust guidance and a capable execution team
to handle such a complex undertaking. Instead, the process moved ahead without first
strengthening the management and organization structure. More attention was devoted to
discussion around non-core issues such as long term fleet acquisitions and establishing
subsidiaries for ground handling and maintenance, than to addressing the state of the flying
business. Air India has continued to see its domestic market share decline. The situation was
compounded by the cultural chasm between Air India and Indian Airlines, leading to an increase
in internal politics, a potentially messy situation in an entity with 35,000 employees. A bloated
workforce, unproductive work practices and political impediments to shedding staff made the
creation of a viable business model extremely challenging. The situation calls for a depth of
leadership across the organization which still does not exist. There appears to be no clear
business plan to revive the carrier and effecting a turnaround now appears to be a herculean task.













Key Developments and Investments
Jet has become the first Indian airline to place an order of fuel-efficient 737 Max aircraft with the
plane-maker Boeing. Boeing and Jet have recently inked a purchase agreement wherein Jet has
agreed to buy 50 such planes at a cost of around US$ 5 billion. The agreement is still under
negotiation (for discounts).
The service of 737-Max is expected to commence by 2017.
India's first ever aviation university, the Rajiv Gandhi National Aviation University at Rae
Bareli in Uttar Pradesh, will start imparting training to aspiring pilots, aircraft engineers and
cabin crew in September 2014. The educational entity is a Government organisation that has
been developed to acknowledge the industry's chronic talent shortage.
The university will induct 1, 000 students by 2018 and eventually, all flying schools in India
will get affiliated to this university.
The Government of Haryana plans to establish a cargo airport in the state by taking up Public
Private Partnership (PPP) mode for the green-field project at Meham in Rohtak. The Haryana
State Industrial and Infrastructure Development Corporation (HSIIDC) will be the equity partner
for bearing the cost of land acquisition for the project.
India's first indigenous aircraft carrier (IAC), being developed at the Cochin Shipyard, has
been launched in August 2013. The 40, 000 tonne-warship machinery is expected to be
operational by 2018. It is done with major fittings and underwater work. Now the superstructure,
the upper decks and out-fittings are to be worked upon.







Road Ahead

Indian aviation market is poised to become the third largest across the globe by 2020, according
to industry estimates. The sector is expected to handle 336 million domestic and 85 million
international passengers with projected investment to the tune of US$ 120 billion. Indian
Aviation Industry that chwurrently accounts for 1.5 per cent of the GDP, has been instrumental
in the overall economic development of the country, said Mr Ajit Singh the Minister for Civil
Aviation. He further stated that given the huge gap between potential and current air travel
penetration in India, the prospects and possibilities of growth of Indian aviation market are
enormous.

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