Airlines Deals

AROUND six months ago it was touted as the biggest merger in the Indian corporate sector. Jet Airways had signed an agreement with Air Sahara for the takeover of its business for Rs23bn. It was news which consumed extensive media space where analysts debated the pros and cons of this merger.

What with civil aviation poised to take off as never before in the history of the nation, this was one deal that had caught the imagination of a large section of Indians.

Those in favour of this deal touted it as a trendsetter in the consolidation of the aviation industry which is today highly fragmented. Those against the deal viewed it as a move which would hurt Jet Airways in the long term.

The facts, as it happens more often than not in such cases, lie embedded somewhere in between. Jet needed to consolidate its position and enhance its airport infrastructure. It also needed to start operations overseas to become a truly global airline. Sahara needed cash to save its existing businesses in other fields, like the retail banking in UP hinterlands and television channels. It was having difficulty in supporting its airline because of high fund requirements. It also had rights to fly to London and USA. This is where the deal came in. Jet would get the infrastructure which Sahara had created while Sahara would get the much needed cash.

Less than six months later the deal has fallen through. This is what went wrong. Clearly the investors were not happy with the deal because Jet stock fell on the announcement of the merger and rose when it was called off. Jet claims it discovered huge liabilities in Sahara books which were not shared when the MOU was signed. It was, therefore, not willing to pay the same amount in the MOU for the deal and wanted discounts. Also it realised that turning Sahara around was not going to be easy because of existing high cost of operations. Sahara, on the other hand, has alleged that Jet wanted a discount and that it indulged in extremely unfair market practices by using this ploy of takeover to kill competition.

It is a fact that Sahara was third largest airline after Indian and Jet. (Jet, in fact, is the biggest in terms of turnover and profitability though Indian -Indian Airlines, as you and I used to know it – has more aircraft and wider networking).

Whatever the obvious reasons, it is speculated that there is more than meets the eye in this whole deal. Air Sahara is owned by Subroto Roy who is a close friend of Amar Singh and Mulayam Singh Yadav of the Samajwadi Party. It is an open secret that the UPA government is out to fix the supporters of Mulayam Singh Yadav. Civil Aviation Minister is Praful Patel who belongs to the Nationalist Congress Party of Sharad Pawar. Naresh Goyal, who is chairman of Jet Airways, is close to Patel. As further evidence, political sources say that a few days ago, the minister told journalists that the Jet-Sahara deal does not make a good business proposition.

It was therefore probably a mix of economics and politics that made Jet walk away from Air Sahara. Subroto Roy has been, in the meantime, forced into a position where he will have to either run the airline or sell it at a throwaway price in the future. (Vijay Mallya of Kingfisher was one of the suitors, but he had valued Sahara at a meager Rs5bn against the Rs23bn that Jet was initially ready to fork out). Clearly in India for an enterprise to be successful you need to have political patronage. Sahara became big because of political patronage and is now facing the flak for the same reason.

Politics and business apart, there is an upside to the whole story. That is that the failure of the deal will sharpen competition among the airlines and this, in turn, will benefit the consumer by way of reduced prices for airline tickets.

If Jet and Sahara are both left fuming, there is one company that is looking for cover. Ernest and Young, which was entrusted by Jet to evaluate Sahara, is left with egg in the face, as it were. Reports say that Jet is even considering suing E&Y for the terrible overvaluation. E&Y, meanwhile, is said to be considering reimbursing Jet all the money it received by way of consultation fee.

Tomatoes make govt see red

LAST week several top leaders of the BJP, including former prime minister Atal Behari Vajpayee, came together in Delhi to protest against the rise in prices of essential commodities. What prompted this event was the sudden rise in prices of tomatoes to Rs40 per kg.

It is a different matter that prices of all food items have been rising constantly and this sometimes have come to haunt Indian politicians. The lowly onion is one of them. Governments have fallen as a consequence of sudden steep rise in the prices of onions because it is a harsh fact that millions of poor people in India eat only chapatti, raw onions and salt for a meal. But this time it was not onions which had risen because of which the government went into crisis mode. It is feared that the poor tomato could do to the Congress what the onions had done to the BJP government in Delhi.

A cabinet meeting was called to discuss the rise in prices. This is immediately after the finance minister had made a statement on the petrol and diesel price hike that he was not worried because inflation was below 5%. (It has gone past that figure by now anyway).

What is emerging very annoyingly is that the government is out of sync with the common man. Indians in the past have been known to spring surprises at elections and one thing which they do not forget is whether the government had ensured that everyone is at least able to feed himself or not.

Clearly Chidambaram misjudged the impact of these policies on the cost of living of the common man.

The Harvard-educated lawyer-turned-politician believed wrongly that high economic growth rate will eventually be sufficient to handle the increase in cost of living. The fact is that over the last two years shantytown dwellers have actually increased in Mumbai by as much as 6% even as farmers are committing suicide in Maharashtra, Kerala, Andhra Pradesh and Orissa.

People cannot forgive a government which hides behind economic statistics and not bother about the impact of its decisions.

The BJP sensed the public mood correctly and went into an overdrive.

The government has now decided to import pulses and other essential commodities to control the price increase. In Delhi, government-owned shops are also selling tomatoes at lower rates. It has also directed its machinery to act strictly against hoarders and black marketers. The reason of this price increase is also attributed to setbacks in agriculture outputs.

Needless to say it is high time the government woke up to this reality of price increase and took measures, otherwise it might have to learn the bitter lesson which the BJP government learnt in the Delhi assembly elections seven years ago.

After all, onions and tomatoes are a veritable must in almost every Indian dish!