Airlines Deals

Private carrier Air Sahara today said it has sacked two of its air hostesses who were involved in a security breach at the official residence of Prime Minister Manmohan Singh here.

The two air hostesses, who were grounded in June on charges of indiscipline and absentism, have been sacked, Air Sahara officials said.

The two air hostesses - Yogita and Veena - had yesterday unauthorizedly drove in a luxury car into the premises of the Prime Minister’s residence along with a male friend Imran.

Air Sahara sources said both of them were recruited in September last year but were suspended and not put on duty since June this year.

They said the two ladies were from Jodhpur but underwent air hostess training in Jaipur.

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Barely two weeks after the Mumbai blast and a nationwide alert, three youngsters in a luxury car managed to breach the most protected and heavily guarded building in the country - the Prime Minister’s residence at 7 Race Course Road – in a prank that has exposed the chinks in the SPG’s supposedly impenetrable armour.

The black Sonata driven by 20-something Yogita on Thursday night shows the ease with which one can breach security arrangements at 7 RCR. Yogita was not only allowed to pass through first security cordon but was not detained when she was stopped at the second cordon.

On any given day, getting into 7 RCR involves a long security drill, with security passes, IDs, mobile phones and even the attire of visitors being thoroughly scrutinised. A justifiable question now is, if despite all this, three people could drive into 7 RCR with such ease, what security implications does this have, especially at a time when LeT and terror threats on sensitive installations are being talked about?

Ssecurity arrangements at 7 RCR is exclusive responsibility of the SPG, or Special Protection Group personnel are required to stop vehicles of anybody - including VVIPs and foreign dignitaries - at the first set of barricades. This was done in the case of the black Sonata. Then, protocol dictates that the car be barred from moving any further, as only the vehicle in which a VVIP is travelling is allowed to go ahead beyond that point.

However, nothing of the sort happened when Yogita, Veena and Imran drove their car inside 7 RCR.

After sending the entire PM security appartus in a tizzy, the three occupants of the Sonata which was driven inside 7 RCR were questioned by a joint team of the SPG and the Delhi Police by the Chanakyapuri Police Station, where the trio had to spend the night.

Till Friday morning, no formal criminal case had been registered against them. All three youngsters had been subjected to a medical checkup, and police said they were waiting for the final report. Sources say however, that they were in an inebriated condition during the incident.

The two girls were identified as Yogita Khatwani and Veena Choudhari, both from Rajasthan. The two girls have claimed that they had completed a course in an airlines academy in Jaipur in September 2005, and formerly worked with Air Sahara – but that, due to indiscipline and lack of attendance, they were asked to leave.

Imran was a friend who accompanied them for a late night drive. The youngsters, who had told the guards at the first security barricade that they were the PM’s relatives, now claim that they just wanted to meet the PM.

Meanwhile, Veena Choudhary’s family in Jaipur has reacted with shock. TIMES NOW correspondent Vishal Barristo spoke with her uncle Col Baldev Choudhari in an exclusive interview.

“I was shell-shocked…it’s a very unfortunate incident, and it was immature on their part,” said the colonel. “She (Veena) rang me up, and asked, ‘Are you watching TV?’ Then she told me that they were on TV because they had gone to meet the PM, and has been let through. I asked how it could be possible, and that they had no business to go there – after all, he’s the PM of India. She sounded thrilled, like she’d climbed Mt Everest. I think it was an impulsive decision, they would not have thought of media attention at the time,” he said.

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The dissolution of the Jet Airways takeover of Air Sahara is typical of the growing pains that emerging markets go through.

The match appeared made in heaven just six months ago, providing Jet with aircraft and human resources plus a roughly 10 percentage point boost to its domestic travel share, to help it defend its market position in the face of rising competition. But airline valuations in India have plummeted about 40% this year, despite rapid market growth, which made Jet’s $500 million deal for Air Sahara, announced back in January 2006, look too expensive.

The correction in investor sentiment for Indian airline companies followed last year’s rush of capital into the sector, when start-up valuations reached unrealistic levels, touching almost $200 million. It also became clear that Jet would be required to make continuous investments, estimated as high as $200 million, to turn around Air Sahara.

In the end, Jet said its withdrawal was driven by “commercial considerations”, as delayed government clearances were not available by the deadline. Overall, this may reflect a strategic miscalculation by Jet, which could prove damaging, particularly if the legal battle becomes drawn-out.

Air Sahara is reportedly planning to sue for damages of up to $450 million. The financial implications for Jet are likely to be serious as it tries to make an out-of-court settlement with Sahara. Jet also faces the capital-intensive route of growing its business organically, rather than expanding via acquisition.

The aborted deal leaves Air Sahara vulnerable, with only a 9.7% share of a highly competitive market and the difficult prospect of rebuilding its airline (12 aircraft are currently grounded) and organisation structure quickly. The carrier aims to hire about 700 employees – mainly pilots and cabin crew – in the next six months to meet its immediate needs, but this will come at significant cost in a tight labour market. Fresh management and restructuring expertise is also critical to the airline’s survival.

Both Jet and Air Sahara are left with the immediate prospect of urgently needing fresh funds, but they have fewer options at their disposal following the Indian stock market tumble in May and June. Jet Airways is reportedly in talks with local Indian banks to raise $400 million in short-term loans to finance aircraft pre-delivery payments, following the delay in its proposed issue of $500 million in foreign currency convertible bonds. Air Sahara is yet to announce its immediate funding plans, but further bank debt is likely.

Trailblazers such as Air Deccan, Go Air and Spicejet are capturing a significant proportion of the market, at the expense of full-service carriers. Back in October 2005, full-service carriers – including Kingfisher for the purposes of analysis – commanded 84% of the market, including 35% by Jet and 12% by Air Sahara. By May 2006, the full-service-carrier share had dropped to 73%, including 34% by Jet and 9% by Air Sahara.

Reviewing the past eight months, full-service carriers are, on average, bleeding 1.5 percentage points of market share a month to no-frills carriers. We do not expect this rate to slow in the short term, given the profile of current fleet orders. Low-cost carriers could therefore control more than 35% of the domestic market by the end of 2006 and pass 50% some time in the second half of 2007. By 2010, the low-cost carrier share could be as high as 70%.

On the other hand, business travel – the bread and butter for Jet and Air Sahara – is expected to increase only a little above GDP growth levels for the next five years. The spectacular rise in demand in India since 2004 has been at the leisure end of the market. It is the emerging untapped leisure sector that will drive the domestic market to more than double over the next five years (growing at 25% a year) to about 60 million passengers by 2010. This leisure growth will mainly be captured by the new breed of low-cost carriers entering the market.

Investment opportunities
These forecasts carry massive implications for airline strategy and financing in India. The recent stock market correction, coupled with the state of the airline industry’s financials, has resulted in more sensible valuations in the market. Nervous investors will be looking at other investment opportunities – such as cargo, maintenance companies and airports – which offer more reliable revenue streams and better long-term returns. Investors will also weigh up the merits of full-service versus low-cost carrier prospects, and will back those that demonstrate efficiency, productivity and stable yields.

Air Sahara, in particular, will need to decide which market segment it aims to serve over the long term, although successfully transitioning from a full-service to low-cost operating model has met with almost universal failure in other markets. For those that survive the current turmoil, the spoils could be significant. But bouts of upheaval and investor nervousness are inevitable in fast-growing markets like India. The bulls will return eventually – India’s aviation future is too bright to keep them away for long.

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Smarting from a failed bid to takeover Air Sahara, Jet Airways has said it had no plans to acquire any other airline.

“We have no plans to acquire any other airlines. We will stand at our level and go alone,” Jet Airways CEO Wolfgang Prock-Schauer said.

Jet Airways’ Rs 2,300 crore deal to take over Air Sahara collapsed in June for want of regulatory approvals.

It has subsequently sparked a legal battle between the two carriers.

Fleet expansion

Prock-Schauer, who was here to announce the launch of services between Amritsar and London from August 4, said that the airline would expand its fleet to 90 aircraft by next year from the present fleet strength of 43.

“The thrice a week service, to be operated with new leased Airbus aircraft, will be a direct flight between Amritsar and the UK,” he said.

He also said that the Jet Airways plans to fly to US from the summer of 2007. But the airline is yet to secure Washington’s permission to operate services to that country.

Jet Chairman Naresh Goyal added that passengers on the Amritsar-London sector could avail of an introductory companion free offer in the premiere class.

The offer is valid from July 21 to August 31, he said. The airline is also offering special economy class fares starting from Rs 17,000 to Rs 25,000 in the sector till August 15.

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Liquor baron Vijay Mallya-promoted Kingfisher Airlines, one of the newest carriers to join the Indian skies, will wait for two more years before tapping the capital market as the company is presently preoccupied with finding its feet.

“As far as the public issue of Kingfisher Airlines is concerned, I will not go public in the next 1-2 years … It is doing well now and we need time to stabilise,” Mallya said addressing an analysts meet here last evening.

Kingfisher, which launched operations early last year, was originally expected to hit the capital market in the second half of 2006.

“We have adequate internal accruals to fund the necessary capital expenditure requirements till that time. I will hit the capital market once the airline gets pretty good valuation,” Mallya said.

Ruling out possibilities of acquiring any airline in the near future, he said he was looking for opportunities that will benefit him to create a major breakthrough in the Indian aviation industry.

“Presently, I am not interested in any Indian Airlines. Kingfisher is doing well with over 70 per cent load factor. I expect a consolidation in the Indian aviation space over the next five years,” said Mallya, who earlier made an unsuccessful bid to takeover full-service carrier Air Sahara.

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The Supreme Court has stayed all proceedings on separate petitions filed by Jet Airways and Air Sahara against each other in the Mumbai and Lucknow courts following the failed Rs2,300 crore ($500 million) acquisition deal.

A three-judge bench headed by Chief Justice Y K Sabharwal issued notice to Air Sahara on Jet’s petition to transfer all suits filed in a Lucknow court to the Bombay High Court. The apex court directed Air Sahara to file its reply within two weeks and asked Jet Airways to file its reply within another week. The court deferred hearing on the matter for three weeks.

The interim order of the Lucknow district court to freeze the escrow account opened for the acquisition would continue till further orders.

Jet Airways had, in January, agreed to buy Air Sahara for Rs2,300 crore in cash. But, the deal collapsed in June for want of regulatory approvals, including security clearance for Jet chief Naresh Goyal to join Air Sahara’s board.

Air Sahara moved the Lucknow district court seeking to stop Jet from operating the escrow account opened for the purpose, even before expiry of the June 21-midnight deadline for completing the share purchase agreement. Jet, too, filed a petition in the Bombay High Court.

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The responsibility of managing the Air Sahara airline business has come to stay with Seemanto Roy, Sahara Chairman Subroto Roy`s younger son, reports Business Standard.

After the failure of the Jet-Sahara deal, this division of responsibilities is in line with the restructuring of the group by Ernst & Young (E&Y), the consultancy firm which had advised the Sahara group on the airline sale.

This is an addition to the Seemanto Roy`s portfolio, who had been managing the Amby valley project. He is being assisted by Alok Sharma, the company president in charge of day-to-day operations.

E&Y had also advised Sahara on professionalisation of the family-run group, which is engaged in more than 30 businesses. In a move, which was interpreted as a `succession plan`, the two sons of Sahara chief Subroto Roy - Sushanto and Seemanto - have been playing a larger role in the group.

After the announcement of the country`s largest deal in the aviation sector, Rono Dutta quit the company. Dutta was the functional chief of Air Sahara.
Air Sahara has also entrusted E&Y with the job of reviewing the airline`s existing business plans, which guide it on capital requirements and other strategic decisions.

Meanwhile, Air Sahara is planning to strengthen its teams in core departments like information technology, engineering and operations.

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With its Rs 2,300 crore takeover deal with Jet Airways falling through, Air Sahara on Monday announced the re-launch of one of its competitive schemes, offering six economy flight coupons worth Rs 26,000 for travel on any domestic sector up to September 30.

The scheme ‘Sixer in Air’, which is inclusive of taxes, would imply that each ticket would cost Rs 3808 plus taxes compared with a range of Rs 4775-Rs 5335 being offered by other full-service carriers, the airline said in a release.

However, flights on two sectors — Delhi-Dibrugarh and Delhi-Cochin — would entail two tickets instead of one for other sectors.

The scheme is open for sale till July 15, after which the fare would be revised to Rs 31,500, inclusive of taxes and surcharge.

Soon after the deal collapsed on June 21, Air Sahara had said it would launch services on its own.

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In its bid to catch up lost ground, Air Sahara today said it would re-start its Delhi-London fights from July end and explore possibilities to fly to China.

“From the third week of July we will be re-starting our Delhi-London flights. We will fly four times a week,” Air Sahara President Alok Sharma told reporters here.

The airline would utilise the leased A-340 aircraft, which has been returned by Jet Airways after a takeover deal between them collapsed, for its Delhi-London service.

Sharma said the airline would pull out all stops in order to regain the lost share during the six months period that Air Sahara was under the control of Jet Airways.

He said the airline was exploring more international destinations and Thailand was the next place where it intended to fly.

Sources said the Air Sahara management is also seriously exploring the possibilities of flying to China.

In its bid to capture its customers back, Air Sahara relaunched its ‘Sixer in the Air’ scheme earlier in the week offering six economy class tickets for Rs 26,000 valid for purchase within the first fortnight of July and travels before September.

Sharma also said that Air Sahara was “revisiting” its relationship with its financial consultant Ernst & Young after the recent developments.

The two companies would have a relook at the working relationship and how best to prepare for future businesses, he added.

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In its bid to catch up lost ground, Air Sahara said it would re-start its Delhi-London fights from July end and explore possibilities to fly to China.
“From the third week of July we will be re-starting our Delhi-London flights. We will fly four times a week,” Air Sahara President Alok Sharma said.
The airline would utilise the leased a-340 aircraft, which has been returned by Jet Airways after a takeover deal between them collapsed, for its Delhi-London service.

Sharma said the airline would pull out all stops in order to regain the lost share during the six months period that Air Sahara was under the control of Jet Airways.

He said the airline was exploring more international destinations and Thailand was the next place where it intended to fly.

Sources said the Air Sahara management is also seriously exploring the possibilities of flying to China

In its bid to capture its customers back, Air Sahara relaunched its ‘Sixer in the Air’ scheme earlier in the week offering six economy class tickets for Rs 26,000 valid for purchase within the first fortnight of July and travels before September.

Sharma also said that Air Sahara was ‘revisiting’ its relationship with its financial consultant Ernst & Young after the recent developments.

“The two companies would have a relook at the working relationship and how best to prepare for future businesses,” he added

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