INDIA BUSINESS WORLD - MARCH 2006
THE MONTH THAT WAS

AIRLINE M& As ALLOW TRANSFER OF ASSETS

In a move that comes as a major boost to the Rs 2,300-crore takeover of Air Sahara by Jet Airways, the aviation ministry's draft guidelines for mergers & acquisitions in the airline industry has provisions that allow transfer of all assets of one airline company to another. This will enable Jet Airways to take over the aircraft, routes, parking bays, landing slots and hangers now vested with Air Sahara.

The new guidelines will be notified next week. The draft has been finalised by the aircraft acquisition committee and it will need clearance from civil aviation minister Praful Patel before it is made as official policy, the officials added.

The committee — which functions under the ministry of civil aviation — has been working on the M&A policy draft for airlines since last week. Once the draft turns into official policy, the directorate general of civil aviation (DGCA) will be in position to decide on the proposed Jet-Sahara merger.

As of now, Jet Airways has not filed an application with the civil aviation ministry for merger of Air Sahara since no guidelines are available for M&As in the airline industry. The DGCA had sought guidelines from the ministry for taking decisions on such applications.

In effect, the M&A policy draft allows transfer of all assets owned by one airline to another in the case of a takeover.

No sale of assets: However, these assets cannot be leased or sold to a third party. ‘Grandfathering' of the rights has not been allowed, officials explained.

Interestingly, the move comes a day after Jet Airways chairman Naresh Goyal expressed the confidence that the government would clear the mega deal and called for guidelines to enable M&As in the aviatio n sector. It is understood that civil aviation minister Praful Patel, who returned to the Capital on Thursday from London, has also been informally briefed about the progress in drafting M&A guidelines. He is expected to consider the policy next week, after a visit to Maharashtra and Assam.

Pending clearance for merger of Air Sahara with Jet, Mr Goyal has worked out a mechanism for running the Sahara group airline as a subsidiary for the time being. Senior representatives of both parties have been discussing merger-related issues in a series of meetings s i n c e Wednesday. Mr Goyal had told ET that he expected the clearances to materialise soon and Air Sahara would be run as a subsidiary till then.

The aircraft acquisition committee drafted the guidelines since it involves possession of aircraft, routes and parking bays. The Director General of Civil Aviation and representative of the Airports Authority of India are part of the committee.

The M&A guidelines from the civil aviation ministry are awaited keenly since there is also a propose to merge Air-India and Indian Airlines. No policy for M&A exists till now and the aviation industry has not seen many such proposals. Jet‘s takeover of Air Sahara and the proposed merger of Air-India and Indian Airlines are part of the consolidation trend which has already picked up globally.