Airline M&A 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 travelers 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. Factors considered by airlines in taking M&A decisions Some of the important factors considered by airlines in taking merger and acquisition decisions are The coverage area of the other airline. Strategically an airline would like to merge with or acquire an airline that operates in routes different from its own. This helps in expanding service coverage and avoiding overlapping of flight schedules. The quality of service and brand image of the other airline. If the other airline has any partnership with a rival group of airlines. From the point of view of customers M&A may lead to increased airfares. This is because M&A reduce the number of operators thereby reducing competition and pushing up prices in the aviation industry. Airline M&A also have important impacts on the employees of the participating airlines.

Concerns that airline employees face in case of M&A Some of the major concerns that airline employees face in case of M&A are Layoffs M&A in most cases are accompanied by layoffs. New job rules. Salary concerns - The new acquiring airline or the new group arising out of a merger may not pay the old salaries. Pensions and other benefits. Seniority - A senior employee of an airline that is acquired may find himself to be not considered senior by the new employer.

Some of the important issues related to airline M&A Time - Airline M&A take much longer time to materialize than in other industries. This is due to the fact that a lot of considerations are involved from costs to operational issues which are generally large in magnitude and complex in nature. Approvals - Approvals are required from governments, often from different levels and different authorities to establish airline M&A.

Efficiency- Airline M&A can lead to cost efficiency of the operators by the elimination of overlapping routes. For the travelers however, this often leads to lesser frequency of flights. Competition M&A in the airline industry help to reduce competition significantly. This helps airlines to achieve higher operating margins. On the other hand, passengers may face higher airfares. Passenger Benefits -Passengers, who are enlisted for frequent-travel schemes will have higher mileage pints. Strife - Airline M&A are often accompanied by strife related to seniority issues, new work rules, etc.

Cases of Airline M&A in India Air India and Indian Airlines For long decades after its independence, India was served by two state run aviation companies Air India which served the international market and Indian Airlines which served the domestic market. Even though the two were started with a lot of capital and initial performance was nothing short of remarkable, it was not long that the two companies started to feel the restrictions and stress of a socialistic shackled system. In the recent years, the opening of Indian aviation sector for private players meant that the competition was getting too much for the two. The solution was found by the Indian government in the form of merger of both the entities. The Government of India, on March 1, 2007, approved the merger of Air India and Indian Airlines to improve operational synergy and increase productivity. Consequent to the above, a new Company viz National Aviation Company of India Limited was incorporated under the Companies Act, 1956 on March 30, 2007. The company became registered on March 30, 2010. The merger was to help the new entity compete with large global airlines. Following the merger of the two companies, it was decided that a combined identity should evolve. Since Air India was a globally and nationally recognized brand name, the operational brand name of the company remained Air India and the Maharaja continued to reign as the mascot of the new airline. The logo of the new airline was a flying swan with the Konark Chakra placed inside it. Benefits The key benefits to Indian Airlines and Air India on account of this merger were as under: The merger had created a mega company with combined revenue of Rs. 15000 crores. The new entity had seen a number of changes in its operating model. It was much less restricted by government control and is therefore much more agile and could churn better returns than the two different entities. Since the two companies had come together, they had also been able to bring together their best practices and reduced the overall operational cost as well as administrative cost by a considerable margin.

Air-India would have a combined fleet of 112 aircraft and would be among the top 10 airlines in Asia and among the leading 30 airlines globally. Critical Analysis: Air India-Indian Merger: Nice idea, poor execution 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 organisation 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 organisation 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. Jet Airways and Sahara Airlines The two carriers share the same history; both began their operations as air taxi operators and later became full service carriers. Jet and Sahara both used to compete on international routes prior to merger. 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. Background: Jet Airways and the Shareholders of Sahara Airlines Limited had concluded a Share Purchase Agreement on January 18, 2006 whereby Jet Airways was to acquire the 100% shares of Sahara Airlines Limited for a Total Consideration of Rs. 2,000 crores. The original 65 day Term of the Agreement expired in March 2006. This was mutually extended to 21st June 2006, at which time Jet Airways also paid an advance of Rs. 500 Crores. At the expiry of the extended period, disputes arose between the parties as to whether or not the agreement had terminated (for non fulfillment of some conditions). These disputes were referred for hearing to an Arbitral Tribunal. However, before the commencement of Arbitral Proceedings, the two parties successfully resolved their disputes and were able to draw up a Settlement Agreement and the Arbitral Proceedings were disposed off in terms of the same agreement. On 20th April, 2007, Jet acquired 100% stake in Air Sahara

15 months after signing the original purchase agreement. Jet purchased its arch rival for 1,450 crores which was 35 % less than the price agreed in 2006. Jet rebranded Sahara as Jetlite and announced that the new entity would offer reduced frills but would be over and above low cost carrier (LCC) in terms of service. The private sector Jet-Sahara combine ended the dominating role of the public sector with the new corporate commanding as much as 32% of the domestic market space. Benefits Jet Airways firmly believed that the acquisition of Sahara Airlines Limited would enable it to derive significant commercial and economic benefits keeping in view the then state of the domestic aviation industry. The key benefits to Jet Airways on account of this acquisition were as under: A strong platform and a larger operational base for future growth. A wider and a more effective coverage of the Indian market and giving the two airlines a very strong position especially in the metro markets. Increased prime time departures and frequencies through a subsidiary. Obtain access to skilled personnel such as Pilots and Engineers, categories of which there was a significant shortage in India. Unit cost savings and improved levels of productivity due economies of scale and common utilization of facilities and resources, arising particularly from common maintenance and training facilities, airport handling facilities, enhanced purchasing power, finance and administrative set-ups, etc. Clear value proposition for the customers in the form of wider network coverage, enhanced and convenient connections and better service levels on a larger scale of operations. Increased availability of airport infrastructure facilities and availability of a larger operational base for future expansion. Since Sahara Airlines would operate as an independent carrier with its own Operating Permit, it would have access to available traffic rights for international operations.

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. The acquisition of Sahara Airlines gave Jet Airways the opportunity to reassess its strategy and use this carrier to provide an innovative service concept of higher quality than current no-frills carriers. Critical Analysis: Jet Airways-Air Sahara: a strategic mistake

Centre for Asia Pacific Aviation is of the view that 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. Kingfisher Airlines-Air Deccan Kingfisher Airlines, a premium Full-Service Carrier, is a private airline based in Bangalore, India. Currently, it holds the status of India's largest domestic airline, providing world-class facilities to its customers. Owned by Vijay Mallya of United Beverages Group, Kingfisher Airlines started its operations on May 9, 2005, with a fleet of 4 brand new Airbus - A320, a flight from Mumbai to Delhi to start with. The airline currently operates on domestic as well as international routes, covering a number of major cities, both in and outside India. Air Deccan is Indias first LCC

Potential Merger with Kingfisher Airlines

The Financial Times reported recently that British Airways (BA) parent International Airlines Group had held talks with carriers including Qatar about an alliance focused on Asia, where Qantas has a substantial presence. But Qatar Airways CEO Akbar Al-Baker yesterday shot down suggestions that the carrier was pursuing an alliance with British Airways parent company. Al-Baker said in Doha that suggestions of a deal are nothing more than press rumors. He stressed that no talks are ongoing with any carrier about a partnership for now. BAs longtime ally Qantas said recently it plans to end its alliance with the British carrier after Qantas signed a 10-year partnership deal with Dubais flagship carrier Emirates. A statement from Emirates said yesterday that it did not have plans to buy a stake in any Indian carrier, after India last week allowed foreign airlines to buy up to a 49 percent stake in local carriers. Kingfisher Airlines is banking on attracting a foreign airline to pump in money, while shares in budget carrier Spice Jet surged yesterday, as investors hoped for foreign investments. Any global carrier eyeing a stake in an Indian carrier must weigh up the benefits of a market with high long-term growth potential but one that has been squeezed by high costs and fierce price competition.

Emirates has no plans to acquire a stake in another airline in India or anywhere else, the airline statement added. According to latest news published in various newspapers Japans Nippon Airways is also in talk with Kingfisher Airlines for the stake purchase in the airlines. If Kingfisher is able to attract foreign investment than there is a chance of its survival by recapitalizing. Apart from its survival the merger option will provide several other benefits: A strong platform and a larger operational base for future growth. A wider and a more effective coverage of the Indian market as well as foreign market and giving the two airlines a very strong position Obtain access to skilled personnel such as Pilots and Engineers, categories of which there was a significant shortage in India. Unit cost savings and improved levels of productivity due economies of scale and common utilization of facilities and resources, arising particularly from common maintenance and training facilities, airport handling facilities, enhanced purchasing power, finance and administrative set-ups, etc. Clear value proposition for the customers in the form of wider network coverage, enhanced and convenient connections and better service levels on a larger scale of operations. Increased availability of airport infrastructure facilities and availability of a larger operational base for future expansion.